MONEY 

WHAT  IT  IS  AND  HOW  TO 

USE  IT 

BY 

WILLIAM  R.  HAYWARD 

Principal  of  the  Curtis  Evening  High  School  and 

Chairman  of  the  Department  of  Economics 9 

Law  and  Accounting,  Washington 

Irving  High  School^ 

New  York 


BOSTON  NEW  YORK   CHICAGO 

HOUGHTON  MIFFLIN  COMPANY 


\ 


COPYRIGHT,  I9I7»  BY  WILLIAM  R.  HAYWARE- 
ALL    RIGHTS  RESERVED 


HClje  »iber*ibt  ^rrttf 

CAMBRIDGE  .  MASSACHUSETTS 
U  .   S  .   A 


PREFACE 

THERE  has  long  been  a  demand,  growing 
more  urgent,  for  the  training  of  young  peo- 
ple to  a  grasp  of  the  meaning  and  use  of 
money.  Much  emphasis  has  rightly  been 
placed  upon  the  need  of  saving,  but,  as 
many  a  man  has  discovered  by  sad  experi- 
ence, we  need  fully  as  much  to  be  taught 
how  to  spend.  This  training,  especially  for 
women  on  whom  the  responsibility  for  a  va- 
ried and  perplexing  business  management 
comes  suddenly  as  an  accompaniment  of 
matrimony,  has  been  the  subject  of  an  ex- 
tended and  careful  study  by  Mr.  Hayward, 
upon  whom  the  six  thousand  girls  yearly 
in  attendance  in  the  Washington  Irving 
High  School  have  been  a  large  responsi- 
bility for  a  long  period.  Other  experience, 
both  previous  and  contemporaneous,  has 
aided  in  maturing  his  judgment.  During 
his  years  of  teaching,  Mr.  Hayward's  field 
of  action  has  included  a  private  business 


in 


416298 


PREFACE 

school,  a  college  for  women,  a  city  univer- 
sity, and  four  city  high  schools.  One  of 
the  latter  was  the  High  School  of  Com- 
merce which  has  prepared  so  many  of 
New  York  City's  boys  for  business  careers. 
He  has  also  business  experience  of  several 
years.  For  the  period  covered  by  the  past 
two  years  he  has  been  editor  of  the  "Effi- 
ciency Society  Journal,"  the  official  organ 
of  the  Efficiency  Society,  an  organization 
composed  of  merchants,  bankers,  manu- 
facturers, and  professional  men.  What  he 
practically  worked  out  in  those  positions, 
corrected  by  experiment  and  amplified  for 
application  to  the  needs  of  boys  and  girls, 
men  and  women,  is  set  forth  in  this  book. 
By  means  of  sufficient  connection  of  the 
subject  with  history  and  economics,  he  has 
made  it  of  a  wider  vital  interest  than  any 
mere  business  compendium. 

WILLIAM  MCANDREW, 
Associate  City  Superintendent  of  Schools 

NEW  YORK  CITY 


CONTENTS 

INTRODUCTION ix 

I.  WHAT  MONEY  is i 

Substitutes  for  money  —  Why  we  want  money 
—  What  money  really  is  —  The  three  ne- 
cessary qualities  of  money  —  What  money 
does  —  How  people  lived  before  money 
was  known  —  Barter  — «« Swapping." 

II.  BARTER  AND  PRIMITIVE  MONEY      .     .       8 

How  barter  developed  into  money  dealings  — 
Cattle  money  —  Belts  of  wampum. 

III.  DEVELOPMENT  AND    USE   OF   METAL 

MONEY 15 

The  desire  for  ornaments  —  Gold  and  silver 
as  ornaments — Their  use  in  barter — Metals 
in  rings  and  weights  used  as  money  — 
Coined  metals — Silver  money  of  Athens — 
Iron  money  of  Sparta. 

IV.  THE  RELATION  OF  MONEY  TO  PROG- 

RESS       20 

Slavery  —  Claims  of  rulers  and  lords  of  the 
lands — How  money  helped  people  to  be- 
come more   free  —  Trades  and  guilds  — 
Debts  and  their  payment  by  money. 
v 


CONTENTS 

V.  How  MONEY  GROWS 24 

Interest  —  Savings —  Extravagance  — Thrift. 

VI.  How  MONEY  is  OBTAINED  ....     29 

Five  ways  of  getting  money — Gifts  compared 
with  earnings  —  Obligations  when  gifts  are 
accepted  —  Boy  and  girl  merchants. 

VII.  KEEPING  ACCOUNT  OF  MONEY     .     .     35 

Accounts  —  Two  classes  of  accounts  —  De- 
velopment of  a  modern  account  —  Book- 
keeping—  Debits  and  credits — The  one 
fundamental  rule  of  accounts  —  Different 
accounts  illustrated  and  explained. 

VIII.  SUBSTITUTES  FOR  MONEY       ...     54 

Bills  of  exchange  —  Real  substitutes  for 
money  —  Bank-notes  —  Government  notes 

—  Checks. 

IX.  BANKING 61 

Money  as  merchandise — Loans  and  discounts 

—  Security  for  loans  —  Notes  —  Drafts. 

X.  STOCKS  AND  BONDS 70 

Partnerships  — Joint-stock  companies  —  Cor- 
porations —  Shares  in  corporations  —  Cer- 
tificates of  stock  —  Bonds. 
vi 


CONTENTS 

XI.  SPECULATION 78 

Business  compared  with  speculation  —  Specu- 
lation compared  with  gambling  —  Stock 
speculation  —  Stupidity  of  gambling. 

XII.  EXCHANGE 86 

Business  between  different  countries — Foreign 
exchange — Gold  exports — Bank  exchanges 
— Clearing  houses. 

XIII.  MONEY  FOR  WOMEN 100 

Women  as  employees  —  Women  as  partners 
of  their  husbands  —  Money  for  women  — 
Conditions  under  which  they  usually  re- 
ceive it  —  Conditions  under  which  they 
should  receive  it. 

XIV.  TRAVEL 107 

Need  for  ready  cash  when  traveling  —  Dan- 
ger from  loss  and  theft  —  Letters  of  credit 
—  Travelers'  checks. 

XV.  BUYING 117 

Care  needed  in  buying  — Prices  and  quantities 
—  Terms. 

XVI.  RECEIVING 123 

Ways  of  receiving  goods  —  Direct  and  in- 
direct ways —  Receipts  —  Bills  of  lading  — 
Examination  of  goods  —  Stock-books  — 
Insurance. 

vii 


CONTENTS 

XVII.  PAYING 128 

Paying  on  time  —  Preparation  for  making  pay- 
ments—  Danger  of  delay  in  making  pay- 
ments—  Suits  and  judgments  —  Failing  — 
Assignments  —  Discounts  —  Methods  of 
payment. 

XVIII.  SELLING 135 

Finding  customers — Advertising — Fixing  sell- 
ing prices — Four  kinds  of  costs — Difference 
between  selling  cost  and  overhead  —  Cost 
calculations  —  Giving  credits  —  Mercantile 
agencies  —  Terms  of  sale  —  Salesmen  — 
Salaries  and  commissions  to  salesmen. 

XIX.  DELIVERING 146 

Ways  of  making  delivery  —  Proof  of  delivery 
—  Shipping  goods — Insuring  goods — De- 
livery records. 

XX.  COLLECTING 151 

Ways  of  collecting —  "  C.O.D."  — Drafts 
— Acceptances  —  Notes  —  Protest —  Stop- 
ping payment  on  checks  —  Examination  of 
accounts. 

INDEX  .  161 


INTRODUCTION 

DEFERRED  payments  are  as  unpopular  in 
education  nowadays  as  in  business.  The 
demand  is  for  power  that  can  become  avail- 
able immediately.  The  theoretical  must  be 
translatable  in  terms  of  the  practical.  Train- 
ing must  be  for  life.  In  this  living  no  one 
test  is  so  constantly  applied  and  so  keenly 
observed  as  one's  reaction  toward  money. 
In  the  business  world  the  use  or  abuse  of 
money  stamps  one  a  success  or  a  failure. 

The  man  who  fifty  years  ago  sold  pota- 
toes at  twenty  cents  a  bushel  and  laid  the 
money  away  for  his  old  age,  in  the  expecta- 
tion that  in  the  year  1917  he  should  be 
able  to  purchase  potatoes  at  the  same  figure, 
stands  aghast  at  the  inroads  into  his  little 
pile.  Attention  to  money  —  knowledge  of 
what  it  is,  how  it  obtains  value,  how  its  power 
expands  or  contracts,  how  it  is  handled,  ac- 
counted for,  how  it  operates  as  master  or 
servant  -j-  marks  the  wise  man.  The  tre- 
mendous increase  in  the  cost  of  living,  the 
ix 


INTRODUCTION 

predicted  upheaval  in  industrial  conditions 
in  the  adjustments  following  war,  force  upon 
the  youth  of  to-day  the  need  of  observing 
the  simple  principles  of  thrift. 

It  was  to  drive  home  the  need  of  thrift 
that  "  Old  Gorgon  Graham/'  in  Letters  of 
a  Self-Made  Merchant,  wrote  to  his  son : 
"  Pay-day  is  always  a  month  off  for  the 
spendthrift,  and  he  is  never  able  to  realize 
more  than  sixty  cents  on  any  dollar  that 
comes  to  him.  But  a  dollar  is  worth  one 
hundred  and  six  cents  to  a  good  business 
man,  and  he  never  spends  the  dollars." 

One  of  the  reasons  why  this  book  has 
been  written  is  to  help  young  people  to 
become  thrifty.  The  author,  as  head  of  the 
commercial  department  of  a  large  city  high 
school,  sees  the  equipment  with  which  young 
people  of  to-day  are  entering  upon  life's 
work,  and  as  editor  of  a  magazine  devoted 
to  economic  efficiency,  realizes  the  standards 
set  by  the  leaders  of  industry.  In  this  book 
he  presents  the  underlying  principles  of 
thrift  —  the  wise  use  of  money.  The  ex- 
planations are  direct  and  simple,  the  illus- 
trative material  rich  and  pat. 


INTRODUCTION 

In  intermediate  classes  and  in  the  early 
years  of  the  high  school  this  book  will  lead 
the  pupils  to  grasp  the  motive  of  the  whole 
commercial  course,  it  will  present  the  eco- 
nomic basis  for  the  intelligent  study  of  his- 
tory and  current  events,  it  will  give  the 
classes  in  English  a  reading  text  of  inspir- 
ing style  and  practical  content.  In  prevo- 
cational  classes  and  continuation  schools  it 
will  link  the  school  with  the  job. 

In  various  organizations  unconnected 
with  regular  school  systems  such  a  book 
will  find  a  welcome.  Not  only  will  it  meet 
a  need  in  the  reading-rooms  of  libraries  and 
social  centers,  but  it  will  also  serve  as  a 
basis  for  study  and  discussion  in  boys'  and 
girls'  clubs.  Leaders  of  the  Boy  Scouts, 
too,  will  find  that  through  the  study  of  this 
book  economic  power  and  independence 
will  take  their  stand  with  the  physical  alert- 
ness, moral  integrity,  and  civic  responsi- 
bility that  characterize  the  troops. 

In  school  and  out  this  book  will  help 
young  America  to  acquire  thrift. 

OSCAR  C.  GALLAGHER 

BOSTON,  MASSACHUSETTS 


MONEY 

WHAT  IT   IS  AND  HOW  TO 

USE   IT 

CHAPTER  I 

WHAT  MONEY  IS 

NEARLY  every  one  who  knows  anything 
about  money  wants  it.  Almost  all  of  us  want 
as  much  as  we  can  get.  It  is  very  likely  that 
everybody  who  wants  money  thinks  he  knows 
just  what  money  is.  It  is  also  probable  that 
he  thinks  he  knows  just  why  he  wants  it. 
But  let  us  see.  Perhaps  in  both  cases  we  can 
learn  to  think  more  clearly  about  this  one 
particular  thing,  which,  as  all  of  us  agree,  is 
wanted  so  much  by  so  many. 

Take  a  dollar  bill  for  instance.  Is  it 
money?  Well,  not  exactly.  It  may  be,  and 
generally  is,  something  "just  as  good,"  as 
they  say  in  stores  when  they  have  n't  just 
what  we  ask  for.  But  how  about  a  Confed- 
erate dollar  bill  ?  That  certainly  is  not  "just 


MONEY 

as  good."  The  Confederate  States  of  Amer- 
ica, which  issued  the  bill,  have  been  out  of  ex- 
istence for  fifty  years.  They  are  out  of  busi- 
ness. "  Confederate  money,"  as  it  is  called,  is 
nothing  more  than  a  curiosity  at  the  present 
time. 

Then  there  are  checks.  Almost  always 
they  are  "just  as  good."  But  sometimes  a 
storekeeper  takes  a  check  from  a  customer, 
and  in  a  few  days  finds  out  that  the  bank  on 
which  the  check  is  drawn  will  not  pay  it.  The 
man  who  gave  the  check  for  ten  dollars,  let 
us  say,  had  only  fifty  cents  in  the  bank. 

But  suppose  you  have  gold  coin.  That 
is  a  different  matter  altogether.  You  don't 
have  to  take  that  to  a  bank,  like  a  check,  to 
find  out  if  it  is  just  as  good  as  money.  Even 
if  the  nation  that  coined  it  went  out  of  exist- 
ence hundreds  of  years  ago,  the  piece  of  gold 
is  much  more  than  a  curiosity.  You  can  take 
it  to  the  United  States  Mint  where  this  Gov- 
ernment coins  money.  There  they  will  give 
you  United  States  gold  coin  in  exchange. 
The  reason  is  that  gold  always  has  a  value 
of  its  own. 


WHAT  MONEY  IS 

Again,  why  do  we  want  money  ?  It  is  be- 
cause other  people  have  things  that  we  want, 
and  they  will  give  us  these  things  in  exchange 
for  money.  We  want  to  get  money  in  order 
to  turn  it  over  to  some  one  else — for  some- 
thing else.  Some  people  say,  "  Money  is  the 
root  of  all  evil."  They  think  they  are  quot- 
ing what  a  very  wise  man  once  wrote.  But 
they  are  quoting  wrongly.  What  he  wrote 
was  this  :  "The  love  of  money  is  the  root  of 
all  evil." 

People  who  love  morteyjust  for  itself  are 
called  misers.  But  almost  all  people,  even 
those  who  have  many  millions  of  dollars, 
value  their  money  because  it  gives  them  the 
power  of  exchanging  it  for  something  else. 
They  may  not  make  use  of  this  power  at 
once.  But  as  long  as  they  have  the  money 
they  know  that  this  power  belongs  to  them. 

If,  then,  there  is  something  that  has  a  value 
of  its  own ;  if  it  is  something  that  all  persons 
are  willing  to  take  in  exchange  for  what  they 
do  not  wish  to  keep  ;  and  if  all  persons  give 
this  thing  in  payment  for  what  they  owe, 
then  this  thing  is  really  money. 
3 


MONEY 

Of  course  there  is  no  one  living  who 
remembers  a  time  before  money  was  used. 
Some  travelers  have  found  remote  regions 
where  money  was  unknown  in  any  form,  but 
such  places  are  few  indeed.  Nevertheless, 
there  was  a  time,  before  the  days  of  history 
began,  when  money  did  not  exist.  And  long 
after  its  adoption  by  a  few  of  the  more  civi- 
lized nations,  a  very  great  part  of  mankind 
was  still  without  its  advantages.  Although 
such  a  condition  cannot  be  fully  realized  by 
us,  yet,  in  considering  the  subject  of  money, 
we  must  set  our  imaginations  at  work  to  try 
to  picture  the  state  of  affairs  that  formerly 
existed. 

There  are  various  beliefs,  traditions,  and 
theories  as  to  the  way  in  which  human  life 
began.  The  discoveries  and  studies  of  some 
scientific  men  have  led  them  to  believe  and 
to  teach  us  that  its  first  existence  was  many 
hundreds  of  thousands  of  years  ago.  Others 
dispute  such  statements  both  on  scientific 
and  religious  grounds.  For  the  study  of  our 
subject  it  is  not  necessary  to  agree  with  any 
side.  It  is  generally  conceded  that,  long  be- 
4 


WHAT  MONEY  IS 

fore  the  days  of  what  is  called  "history," 
human  beings  lived  in  caves  in  regions  where 
fire  was  not  required  to  make  life  possible, 
and  where  their  food  consisted  of  fruits, 
berries,  nuts,  and  roots. 

Many  of  these  early  people  seem  to  have 
lived  in  groups  or  communities ;  this  was 
probably  for  protection  against  certain  kinds 
of  wild  beasts.  These  larger  communities 
were  divided  into  little  groups  composed  of 
a  man,  a  woman,  and  their  children.  Apart 
from  the  need  for  general  protection,  of 
which  we  have  just  spoken,  it  is  probable 
that  each  little  group  was  interested  in  itself 
alone.  The  parents  found  food  for  them- 
selves and  their  children,  and  fastened  to- 
gether whatever  clothing  was  found  neces- 
sary. By  degrees  they  began  to  notice  the 
doings  of  other  groups,  following  them  in 
search  of  food  and  imitating  them  in  their 
coverings.  What  we  hear  from  travelers 
among  savage  tribes  leads  us  to  believe  that 
the  lives  of  the  children  of  to-day  may  guide 
us  in  imagining  the  childhood  of  the  human 
race.  Little  children,  indeed,  are  fed  and 
5 


MONEY 

clothed  by  their  parents.  But  their  earliest 
energies  in  play  (which  is  their  real  life)  are 
used  in  making  various  things  that  suit  their 
childish  fancy.  Some  of  these  things  are  ex- 
changed for  other  things  made  by  their  play- 
mates, which  seem  for  the  moment  more 
desirable  than  those  which  they  themselves 
have  made. 

Now,  to  return  to  the  old-time  dwellers  in 
the  caves.  Herbert  Spencer's  opinion,  sup- 
ported by  arguments,  is  that  clothing  was 
first  worn,  not  for  warmth,  but  for  ornament. 
Like  little  children  of  to-day,  these  early  hu- 
man beings  decorated  themselves  as  they 
fancied.  Doubtless  their  changing  fancies 
caused  them  to  covet  the  decorations  of  their 
companions.  Then,  like  little  children  once 
more,  they  exchanged  decorations  to  gratify 
these  fancies.  Then,  as  years  went  by  and 
the  human  race  grew  older,  a  new  method 
arose  such  as  little  children  adopt  when  they 
become  boys  and  girls.  Some  of  them  found 
that  they  could  make  certain  things  much 
better  than  their  neighbors.  They  made 
more  of  these  things,  therefore,  than  they 
6 


WHAT  MONEY  IS 

themselves  needed.  These  they  exchanged 
for  such  other  articles  as  their  companions 
were  willing  to  give  up.  It  was  precisely  the 
same  principle  as  that  on  which  two  boys 
"  swap  "  a  jack-knife  for  a  fishing-rod,  or  two 
little  girls  exchange  a  doll  for  a  ring. 

This  is  what  we  call  barter.  Money  did 
not  exist,  but  life  was  young,  its  methods 
were  simple,  and  the  need  for  money  was  not 
pressing.  People  took  the  time  to  bargain 
over  their  exchanges  or  "swapping."  No 
doubt  they  quarreled  frequently,  and  it  is 
probable  that  often  each  party  to  the  bargain 
felt  later  on  that  the  other  person  had  got 
the  better  of  him.  Still,  for  a  long  time  this 
method  of  dealing  seemed  good  enough.  It 
appeared  simple  enough,  although  in  reality 
it  was  cumbersome.  Above  all,  it  doubtless 
never  occurred  to  any  one  for  a  long  time 
that  there  could  possibly  be  any  other  way 
to  accomplish  the  desired  purpose. 


CHAPTER  II 
BARTER  AND  PRIMITIVE  MONEY 

IN  the  first  chapter  we  arrived  at  the  con- 
clusion that  an  article  must  possess  three 
qualities  in  order  that  it  may  rightly  be  called 
money.  These  are  the  qualities  :  it  must  have 
a  value  of  its  own  ;  it  must  be  something  that 
all  persons  are  willing  to  take  in  exchange 
for  what  they  do  not  wish  to  keep  ;  it  must 
be  something  that  all  persons  give  in  pay- 
ment for  what  they  owe.  In  the  transactions 
called  barter^  the  articles  exchanged  have 
only  the  first  of  these  qualities ;  that  is  to 
say,  they  have  a  value  of  their  own.  No 
matter  how  worthless  an  article  may  appear 
to  the  person  who  is  giving  it  in  exchange, 
there  must  be  something  which  makes  it 
valuable  to  the  person  who  receives  it.  The 
mere  fact  that  he  is  willing  to  give  something 
for  it  shows  that  to  him,  at  least,  it  possesses 
some  value.  This  fact,  however,  is  not  suf- 
ficient by  itself  to  entitle  the  object  to  the 
8 


BARTER  AND  PRIMITIVE  MONEY 

name  of  money.  It  is  not  the  common  meas- 
ure by  which  we  value  other  different  ob- 
jects. To  illustrate:  A  man  may  go  into  a 
shoe  store  and  buy  a  pair  of  shoes  for  three 
dollars  and  a  half.  Another  man  may  go  into 
the  same  store  and  buy  a  pair  of  shoes  for 
five  dollars.  If,  later,  each  of  these  men  tells 
us  of  his  purchase,  we  can  form  an  idea  of 
what  each  man  has  bought,  simply  by  know- 
ing the  price  —  the  money  value  of  each. 
We  are  accustomed  to  buy  shoes  and  we 
know  that,  by  paying  an  additional  dollar  and 
a  half,  a  pair  of  shoes  can  be  obtained  made 
of  finer  leather  and  finished  in  superior  style. 
If  the  purchases  are  shown  to  us,  we  see  ex- 
actly what  we  expect. 

On  the  other  hand,  two  boys  may  ex- 
change a  jack-knife  for  a  fishing-rod,  or  two 
girls  may  exchange  a  doll  for  a  ring.  When 
we  are  told  of  these  transactions,  we  can  form 
no  definite  idea  of  the  qualities  possessed  by 
the  four  objects.  A  boy  may  be  so  anxious 
to  go  fishing  that  he  may  give  a  very  ex- 
pensive knife  for  a  very  cheap  rod.  Or  a  girl 
may  have  so  strong  a  fancy  for  a  cheap  brass 
9 


MONEY 

ring  in  which  a  piece  of  colored  glass  is  set 
that  she  may  give  for  it  an  elaborate  wax  doll 
which  cost  a  great  deal  of  money  to  the  rela- 
tive who  purchased  it  for  her.  In  these  two 
transactions  of  barter  everything  depended 
on  the  individual  tastes  of  the  parties  to  the 
bargains. 

In  the  far-distant  past  to  which  the  imag- 
ination was  directed  in  the  preceding  chap- 
ter, a  time  arrived  when  the  transactions  of 
barter  changed  gradually  into  bargains  in- 
volving money.  Coined  metal  is  not  meant 
by  this,  but  something  else  which,  though 
not  so  simple  and  convenient,  still  was  en- 
titled to  the  same  distinctive  name. 

Let  us  once  more  set  our  imagination  at 
work.  As  the  human  race  grew  in  experi- 
ence, and  consequently  in  intelligence,  ani- 
mals were  tamed  for  domestic  use.  Among 
the  first  to  be  tamed  were  cattle.  People 
drank  their  milk  or  made  from  it  butter  and 
cheese.  Perhaps  at  first  the  cattle  were  owned 
in  common  by  members  of  each  tribe  or 
community.  However  that  may  be,  the  time 
came  when  separate  individuals  owned  one 
10 


BARTER  AND  PRIMITIVE  MONEY 

or  more  of  these  cattle  as  their  own  personal 
property.  But  they  had  other  property,  and 
it  was  such  as  is  not  possessed  to-day  among 
civilized  people.  We  know  that  in  the  ear- 
liest historical  times  a  man's  wife  and  his 
children  were  his  absolute  property,  to  be 
dealt  with  as  he  saw  fit.  This  fact  shows  that 
a  time  came  when  a  man  could  not  choose 
a  wife  according  to  his  fancy  and  simply 
take  her  to  his  home.  The  girl  or  woman 
of  his  choice  was  property  —  the  property 
of  her  father.  He  must  give  her  father  some- 
thing of  value  in  order  to  obtain  her.  At 
first,  no  doubt,  various  objects  were  offered 
by  different  suitors  to  tempt  the  fancy  of  the 
father.  By  degrees  it  is  probable  that  a  father, 
when  asked  for  his  daughter,  reasoned  in 
something  like  this  fashion :  "  Here  is  a 
young  man  who  wants  my  daughter  very 
much.  He  will  give  for  her  something  that 
he  values  almost,  but  not  quite,  as  much  as 
he  values  the  girl.  Perhaps  he  will  even  give 
me  a  cow.  My  daughter  works  for  me  and 
is  useful ;  but  a  cow  would  be  worth  even  a 
little  more  to  me.  I  will  ask  him  for  a  cow 
ii 


MONEY 

in  exchange  for  the  girl."  And  so  the  ex- 
change was  made.  At  first  it  was  simply 
barter.  Then  the  exchange  of  a  cow  for  a 
wife  became  a  usual  transaction.  Perhaps 
two  young  men  wanted  the  same  girl,  pos- 
sibly because  she  was  unusually  clever  at 
household  tasks,  but  more  likely  because 
she  was  unusually  beautiful.  Then  one  man 
would  offer  two  cows  instead  of  one,  and  the 
prize  would  be  allotted  to  him.  By  degrees 
one  or  more  cows  would  invariably  be  given 
for  a  wife.  The  value  of  a  cow  was  some- 
thing well  known  to  everybody.  Thus  the 
number  of  cows  given  for  a  girl  was  an  indi- 
cation of  the  value  in  which  she  was  held. 
Cattle  had  become  money  in  the  true  mean- 
ing of  the  term.  They  were  the  first  money 
of  which  we  have  any  record,  and  probably 
they  were  the  first  objects  of  value  which 
deserved  the  name. 

There  is  a  part  of  the  world  where  this 
custom  of  buying  a  wife,  slightly  varied, 
has  lasted  until  recent  times,  and  perhaps 
exists  even  at  the  present  day.  In  that  re- 
gion of  Western  Asia  known  as  The  Cau- 

12 


BARTER  AND  PRIMITIVE  MONEY 

casus,  the  women  are  said  to  be  unusually 
beautiful.  In  families  where  one  of  the 
daughters  possessed  exceptional  beauty  she 
was  not  permitted  to  do  any  work  what- 
ever. She  received  every  care  and  attention. 
No  pains  were  spared  to  cultivate  every 
charm  with  which  she  was  gifted.  Then, 
when  her  beauty  was  considered  in  perfec- 
tion, she  was  taken  to  Constantinople  and 
offered  in  exchange  —  not  for  many  cows, 
but  for  their  equivalent  in  Turkish  piastres. 
We  see,  then,  that  the  first  money,  cattle, 
consisted  of  objects  of  utility.  We  know, 
however,  that  in  early  times  articles  of  orna- 
ment also  were  used  as  money  in  the  true 
sense.  Among  the  North  American  Indi- 
ans a  certain  rare  seashell  was  valued  for  its 
beauty.  Chains  of  these  shells  were  col- 
lected and  used  at  first  as  necklaces,  brace- 
lets, and  belts.  Like  everything  that  came 
under  the  head  of  property,  they  were,  of 
course,  objects  of  barter.  Then  by  degrees 
these  shells  became  the  principal  objects  of 
barter.  A  fixed  number  of  shells  of  the 
same  size  and  quality  were  strung  together 


MONEY 

and  were  called  "  belts  of  wampum."  Ob- 
jects of  general  use  or  desire  were  exchanged, 
as  a  matter  of  custom,  for  so  many  belts  of 
wampum.  Wampum  had  become  money. 

In  all  ages  children  have  imitated  in  play 
the  doings  of  their  elders.  In  our  own  day 
almost  all  children  have  at  some  time 
"played  store."  One  child  collects  various 
treasures,  places  them  on  an  imitation  counter, 
and  sells  them  to  playmates.  For  one  article 
so  many  pins  are  demanded.  For  another 
article  the  price  is  a  greater  number  of  pins. 
Then,  with  the  pins  thus  obtained,  the 
youthful  storekeeper  goes  to  another  child's 
store,  and  buys  whatever  fancy  may  dictate. 
In  this  child  world  of  purchase  and  sale,  the 
pins  of  the  youthful  merchants  are  for  their 
purposes  really  money. 


CHAPTER  III 

DEVELOPMENT  AND  USE  OF  METAL 
MONEY 

THE  desire  to  wear  ornaments,  as  a  trait 
of  the  primitive  tribes  as  well  as  of  civilized 
races,  has  already  been  noted.  Wild  flowers 
were  doubtless  worn  for  this  purpose  from 
remotest  times.  The  earliest  traditions  speak 
of  the  use  of  garlands  of  flowers  to  deck 
the  altars  of  the  gods  or  to  enhance  the 
charms  of  beautiful  women.  It  is  not  likely, 
however,  that  flowers  were  ever  objects  even 
of  barter.  A  desire  for  rare  plants  is  devel- 
oped with  the  complex  civilization  of  more 
modern  times.  As  an  instance,  may  be  men- 
tioned the  period  when  a  craze  for  tulips 
took  possession  of  the  entire  population  of 
Holland  and  fabulous  sums  were  paid  for 
rare  specimens  of  that  flower.  In  early  days 
articles  of  rarity,  in  order  to  be  of  value  for 
barter,  were  less  perishable  than  flowers  that 
faded  in  a  day.  Rare  shells  and  other  nat- 
15 


MONEY 

ural  objects  found  on  the  surface  of  the 
earth  had  their  day,  and  then  came  orna- 
ments made  from  substances  that  were  dug 
from  beneath  the  surface.  Silver  and  gold, 
were  discovered  and  their  beauty  admired. 
From  that  day  until  the  present  time  these 
two  metals  have  been  eagerly  sought  by 
almost  all  mankind.  Their  relative  values 
have  varied,  but  from  the  earliest  day  of 
history  and  tradition  there  has  never  been 
a  time  when  gold  and  silver  have  not  been 
thought  of  as  wealth.  These  metals  were 
shaped,  first  roughly  and  then  with  more 
care,  into  such  objects  of  ornament  as  the 
fancy  of  each  person  dictated.  Then  rings 
of  a  standard  size  were  used  for  purposes 
of  exchange.  When  this  occurred,  gold  and 
silver  ceased  to  be  merely  articles  of  barter 
and  became  money  in  the  true  meaning  of 
the  word.  In  the  records  of  the  early  He- 
brew Scriptures  the  sons  of  Jacob  took 
money  into  Egypt  to  buy  food.  This  money, 
it  is  known,  consisted  of  rings  of  metal, 
probably  silver.  Then,  instead  of  rings, — 
or  in  addition  to  them,  —  solid  pieces  of 
16 


USE  OF  METAL  MONEY 

metal,  of  standard  weights,  came  into  use, 
and  for  ages  were  the  money  of  the  world. 
As  simplicity  developed  into  skill,  the  latter 
was  accompanied  by  rascality.  Rings  and 
weights  were  made  which  were  represented 
to  be  pure  gold  or  silver,  but  which  were 
mixed  with  baser  metals.  Also  cheap  metals 
were  covered  by  a  coating  of  gold  or  silver 
for  the  purpose  of  deceit. 

Some  mark  was  needed  to  distinguish  good 
money  from  its  counterfeit.  Then  rulers 
caused  likenesses  of  themselves  to  be  stamped 
on  pieces  of  metal  of  different  sizes,  to 
which  different  names  were  given.  Coined 
metals  had  become  the  money  of  civiliza- 
tion. Money,  in  the  true  meaning  of  the 
word,  was,  in  the  beginning  and  in  early 
times,  something  that  could  not  only  be  ob- 
tained, but  produced,  by  almost  every  individ- 
ual. Whether  it  were  cattle,  wampum,  metal 
rings  and  weights,  or  gold  and  silver  bars 
or  disks  with  the  values  or  weight  stamped  or 
carved  on  them  —  in  any  case  almost  every 
one  was  able  by  industry  or  skill  to  pro- 
duce his  own  money.  The  time  came,  how- 
17 


MONEY 

ever,  when  the  governing  authority  reserved 
for  itself  the  right  to  place  its  mark  on  the 
pieces  of  metal  which  had  then  become  the 
almost  universal  medium  of  exchange.  A 
king  would  cause  a  stamp  to  be  engraved 
with  a  likeness  of  himself,  or  with  his  name, 
or  both,  and  these  would  be  stamped  upon 
pieces  of  metal  of  known  weight  and  value. 
Such  pieces  of  metal  were  known  as  coins. 
From  that  time  until  the  present  day  they 
have  remained  as  the  basis  of  all  systems 
of  exchange.  Doubtless  they  will  continue 
to  hold  that  position  until  the  time  shall 
arrive  (if  indeed  that  time  ever  comes)  when 
a  still  higher  degree  of  civilization  shall 
render  the  use  of  money  needless. 

A  curious  instance  of  the  use  of  a  metal 
for  money  occurred  in  the  early  days  of 
Greece.  Although  Athens  and  nearly  all 
the  other  States  made  use  of  silver  coins, 
one  of  the  States,  Sparta,  forbade  the  use 
of  any  money  except  iron  weights  bearing 
the  stamp  of  the  Government.  This  iron 
money  had  only  one  of  the  three  necessary 
qualities  spoken  of  in  the  first  chapter.  It 
18 


USE  OF  METAL  MONEY 

had  no  value  of  its  own,  or  only  a  very 
slight  value.  All  persons  were  not  willing 
to  take  it  in  exchange  for  what  they  did  not 
wish  to  keep.  The  people  of  Sparta,  it  is 
true,  did  take  it  in  exchange,  but  they  did 
so  unwillingly  and  only  from  fear  of  pun- 
ishment in  case  of  refusal.  The  third  qual- 
ity, indeed,  it  did  possess.  People  who  were 
in  debt  gave  it  in  payment  by  law  and  cus- 
tom. The  iron  money  of  Sparta,  therefore, 
was  money  only  in  name.  It  was  forced  by 
law  upon  the  people,  and  before  very  long 
it  passed  out  of  use  and  gave  place  to  the 
money  of  civilization. 


CHAPTER  IV 

THE  RELATION  OF  MONEY  TO 
PROGRESS 

LOOKING  backward,  however  far,  into  the 
remote  past  when  traditions  were  first  writ- 
ten and  called  "  history/'  we  still  find  rec- 
ords of  the  unfortunate  beings  who  are 
spoken  of  as  "  slaves. "  Not  only  did  all 
that  they  produced  belong  to  their  masters, 
but  even  their  lives  were  at  the  mercy  of 
the  same  tyrants.  But  there  is  a  lesser  de- 
gree of  slavery  that  contains  some  of  its 
galling  elements.  That  semi-slavery  is  called 
debt.  It  existed  before  the  dawn  of  history, 
and  it  exists  to-day.  In  some  countries,  and 
in  some  ages,  it  was  even  the  law  that  when 
a  debtor  was  unable  to  pay  his  obligations 
he  could  be  sold  into  absolute  slavery  in 
order  that  the  price  obtained  might  be  paid 
to  his  creditors. 

The  common  form  of  obligation  in  early 
ages  was  the  payment  which  the  poor  culti- 
20 


RELATION  TO  PROGRESS 

vators  of  the  soil  were  forced  to  make  to  t| 
powerful  nobles  or  lords  of  the  land.  A 
certain  large  proportion  of  all  that  they  pro- 
duced must  be  given  to  these  masters  before 
they  themselves  were  permitted  to  enjoy 
what  remained.  In  many  cases  the  peasants 
were  forbidden  under  any  circumstances  to 
leave  the  place  where  they  happened  to  be 
born.  But  in  no  event  could  they  hope  to 
go  elsewhere  while  any  obligation  to  their 
superiors  remained  due.  Almost  all  the  in- 
habitants of  Europe  were  thus  once  practi- 
cally chained  to  the  little  spot  where  they 
first  saw  the  light  of  day,  except  when  their 
leaders  forced  them  to  march  away  and  fight 
battles  under  their  banners. 

By  degrees,  however,  another  custom  grew 
up.  Instead  of  giving  the  nobleman  a  cer- 
tain number  of  oxen  and  sheep  or  a  certain 
number  of  bushels  of  wheat,  the  producer 
was  allowed  to  pay  a  sum  of  money.  He 
could  obtain  this  money  by  selling  the  cat- 
tle, sheep,  or  wheat,  or  in  any  other  way  that 
he  was  able,  provided  he  did  not  interfere 
with  any  of  the  rights  of  his  noble  masters. 

21 


MONEY 

Some  of  the  people  began  to  earn  money 
in  simple  trades,  as  smiths  or  weavers  of 
cloth.  At  first  these  trades  were  practiced 
when  time  could  be  spared  from  the  regu- 
lar employment  of  cultivating  the  land. 
Gradually  more  and  more  time  was  given 
to  the  trades  until  at  last  no  time  was  left 
for  anything  else.  Agricultural  laborers  — 
some  of  them  —  had  developed  into  arti- 
sans. Then  it  was  found  convenient  by 
them  to  live  in  towns  in  order  to  practice 
their  trades.  Permission  was  obtained  to 
do  so  —  of  course  through  the  payment  of 
money. 

In  time  associations  were  formed  called 
"  guilds."  Their  members  lived  in  the  cities, 
and,  by  means  of  money  payments,  obtained 
the  protection  of  very  great  nobles  and  even 
of  the  king.  Their  members  were  no  longer 
bound  to  one  spot  of  earth,  but  were  per- 
mitted to  travel  to  various  points  of  the 
country  and  even  into  foreign  lands.  Guilds 
and  associations  of  merchants  became  more 
and  more  wealthy  and  powerful  until  even 
free  and  independent  cities  arose,  such  as 

22 


RELATION  TO  PROGRESS 

Hamburg,  Bremen,  and  Liibeck.  Money 
had  helped  people,  if  not  to  become  really 
free,  at  least  to  secure  a  greater  measure  of 
freedom.  Other  obligations  were  also  dis- 
charged by  the  same  convenient  means  of 
money  payments.  Instead  of  following  the 
nobleman  to  battle,  it  was  possible  to  avoid 
service  as  a  soldier  by  paying  money. 

In  civilized  countries  slavery,  at  least  un- 
der that  name,  has  ceased  to  exist.  But  the 
partial  slavery  of  debt  can  be  seen  on  every 
hand.  For  its  existence  there  is  sometimes 
good  and  sufficient  reason.  Always  an  ex- 
cuse of  some  kind  can  be  found  for  it, 
whether  the  excuse  is  good  or  bad.  What- 
ever the  reason  and  whatever  the  excuse,  it 
is  certain  that  debt  is  always  a  burden.  The 
remedy  is  money.  Industry  and  skill  will 
obtain  it.  Economy  will  enable  us  to  save 
part  of  our  earnings  and  apply  that  part  in 
payment  of  the  debt.  In  time  the  entire 
obligation  will  be  paid.  Money  will  have 
become  our  servant,  and  we  ourselves  shall 
be  really  free. 


CHAPTER  V 
HOW  MONEY  GROWS 

LET  us  suppose  that  a  man  saves  out  of 
his  year's  earnings  the  sum  of  one  hundred 
dollars.  He  locks  the  money  in  a  strong  box, 
and  feels  contentment  in  the  knowledge  that 
if  he  has  need  for  it  he  can  go  and  get  it  at 
any  time.  At  the  end  of  another  year  if  he 
goes  to  the  strong  box  he  will  find  exactly 
his  one  hundred  dollars  —  neither  more  nor 
less.  But  let  us  suppose  that  a  friend  who 
is  in  business  comes  to  him  and  says,  "  My 
business  is  so  good  that  I  want  to  increase 
it.  Lend  me  one  hundred  dollars  to  use  in 
my  business,  and  at  the  end  of  the  year  I 
will  return  you  one  hundred  and  six  dollars." 
You  say  to  yourself,  "If  I  lend  this  money, 
I  cannot  lay  my  hand  on  it  at  any  time  in 
case  of  need.  But  I  shall  probably  not  need 
it  for  a  year.  In  fact  I  shall  probably  save  an- 
other hundred  dollars  during  next  year.  And 
if  I  lend  this  money  to  my  friend  it  will  grow." 
24 


HOW  MONEY  GROWS 

You  therefore  lend  him  the  money.  At 
the  end  of  the  year  he  returns  you  your 
hundred  dollars  and  also  an  additional  sum 
of  six  dollars  in  payment  for  the  use  of  the 
sum  lent  by  you.  The  additional  six  dollars 
is  a  payment  for  what  is  called  interest. 

You  have  now  the  sum  of  one  'hundred 
and  six  dollars  which  you  can  either  lock  up 
or  lend.  If  you  lend  it  for  another  year  you 
will  receive  back  one  hundred  and  twelve 
dollars  and  thirty-six  cents.  In  other  words, 
the  money  received  in  payment  for  interest 
at  the  end  of  the  first  year  has  itself  pro- 
duced more  money  in  payment  for  interest 
by  the  end  of  the  second  year.  The  extent 
to  which  money  can  grow  in  this  manner  is 
not  realized  by  every  one.  If  money  is  loaned 
at  six  per  cent  a  year,  and  the  entire  sum  re- 
ceived back  is  loaned  again  at  six  per  cent 
for  another  year,  and  the  process  is  repeated, 
the  original  sum  will  be  doubled  in  a  little 
less  than  twelve  years.  One  hundred  dollars 
will  have  grown  to  two  hundred  and  one  dol- 
lars and  twenty  cents  in  twelve  full  years. 
If,  however,  a  hundred  dollars  are  saved 
25 


MONEY 

every  year,  the  total  amount  at  the  end  of 
twelve  years  of  lending  will  be  $1788. 20. 
That  is,  $1200  of  savings  will  have  produced 
$588.20  in  payment  for  interest. 

Of  course  it  is  not  safe  to  lend  your  sav- 
ings to  anybody  who  wishes  to  borrow  them. 
A  friend  may  be  very  hopeful  that  his  busi- 
ness will  be  good  in  the  future.  He  may 
borrow  your  money  and  by  ill  luck  or  bad 
management  he  may  lose  all  that  he  has,  in- 
cluding what  he  has  borrowed  from  you.  It 
is,  therefore,  necessary  to  use  care  and  judg- 
ment in  lending.  Some  people  are  able  to 
save  money,  but  have  no  means  of  judging 
who  are  the  safest  persons  to  whom  to  lend 
it.  For  their  benefit  savings  banks  have  been 
established  under  the  control  of  the  State. 
Their  management  is  carefully  watched,  and 
money  entrusted  to  them  is  seldom  lost. 
But  money  loaned  to  savings  banks  will  not 
produce  six  per  cent.  If  you  wish  to  enjoy 
the  feeling  that  your  money  is  perfectly  se- 
cure in  a  savings  bank,  you  must  be  content 
to  receive  four  per  cent  or  less.  Thus  we  re- 
alize that  it  is  not  enough  to  save  part  of 
26 


HOW  MONEY  GROWS 

what  we  earn.  We  must  be  careful  to  whom 
we  lend  our  savings  or  they  may  be  lost. 

It  would  have  been  impossible  for  money 
to  have  been  loaned  over  and  over  again 
without  loss  for  a  period  of  five  hundred 
years.  Wars,  dishonest  borrowers,  careless 
lenders,  accidents,  and  other  causes  would 
certainly  have  caused  immense  losses.  But 
if  we  can  imagine  it  to  have  been  possible, 
let  us  suppose  that  the  sum  of  one  cent  had 
been  loaned  in  the  year  1417  at  six  per  cent 
interest,  and  that  at  the  end  of  every  year  all 
the  money  that  was  returned  had  been  loaned 
again  at  the  same  rate.  In  1917,  at  the  end 
of  five  hundred  years,  the  original  one  cent, 
with  the  accumulated  payments  for  interest, 
would  have  grown  to  the  almost  incredible 
sum  of  $44,967,205,970.71  —  nearly  forty- 
five  thousand  millions  of  dollars. 

When  we  consider,  then,  how  abundantly 
this  plant,  money,  can  be  made  to  blossom, 
when  the  seed  is  properly  planted  and  care- 
fully watered,  we  can  realize  the  folly  of 
scattering  that  seed  where  it  can  never  grow. 
A  young  man  who  earns  a  good  salary  may 
27 


MONEY 

say  to  himself,  "  Oh,  what 's  a  ten  dollar 
bill  !  What 's  the  use  of  saving  a  c  ten 
spot '  ?  "  Or  else,  "  I  've  only  got  a  few  dol- 
lars. I  '11  blow  them  in.  I  might  as  well  be 
broke  as  the  way  I  am."  And  thus  he  flings 
the  seed  on  "  stony  ground/' 

Another  young  man,  earning  perhaps  a 
smaller  salary,  saves  what  he  can  and  puts  it 
in  a  savings  bank.  In  a  strangely  short  time 
he  finds  a  good  sum  there.  An  opportunity 
occurs  where  his  judgment  tells  him  that  he 
can  safely  draw  this  money  out  of  the  bank 
and  invest  it  where  he  can  obtain  a  higher 
rate  of  interest.  His  savings  begin  to  grow 
at  a  quicker  rate.  He  sees  himself  the  master 
of  a  small  capital,  and  success  is  opening 
before  him. 


CHAPTER  VI 

HOW  MONEY  IS  OBTAINED 

WHEN  the  subject  of  money  was  first  dis- 
cussed we  stated  that  all  of  us  want  money. 
The  time  has  now  arrived  to  consider  the 
different  ways  of  obtaining  it.  Money  can 
be  obtained  by  gift,  by  earning,  by  finding, 
by  gambling,  and  by  stealing. 

The  last  of  these  methods  it  is  unneces- 
sary to  discuss.  In  a  later  chapter  we  shall 
consider  the  question  of  gambling,  and  com- 
pare it  with  speculation.  Finding  money  is 
a  rare  occurrence  and  may  be  brought  under 
the  heading  of  either  gift  or  earning.  When 
money  is  found  we  know  that  it  was  the  prop- 
erty of  some  one  else.  Our  proper  course  is 
to  discover  the  owner  if  possible  and  return 
his  property  to  him.  If  after  a  reasonable 
effort  we  are  unable  to  find  the  owner,  we 
are  justified  in  considering  the  money  our 
own.  It  then  can  be  called  a  gift  of  chance 
29 


MONEY 

or  it  may  be  considered  as  having  been 
earned  by  our  efforts  to  find  the  former 
owner. 

The  way  in  which  almost  every  one  ob- 
tains money  is  by  receiving  it  as  a  gift.  Pa- 
rents give  their  children  money  as  a  present 
because  they  love  them  and  enjoy  seeing  the 
happiness  that  comes  to  them  from  spend- 
ing the  money.  In  the  beginning,  usually, 
money  is  given  to  a  child  irregularly,  either 
when  it  is  asked  for  or  when  the  wish  to 
give  enters  the  mind  of  the  parent.  As  the 
child  grows  older  it  often  happens  that  a 
stated  allowance  is  made,  a  regular  sum  being 
given  each  week  as  spending  money.  An 
allowance  of  this  nature  is  the  link  that  con- 
nects the  period  of  time  when  a  gift  of  money 
is  an  occasional  and  perhaps  unexpected 
event,  and  the  later  period  when  money  is 
earned  by  the  boy  or  girl. 

Human  beings  are  accustomed  to  value 
the  things  that  are  hard  to  get.  The  more 
difficult  it  is  to  obtain  them,  the  more  highly, 
as  a  rule,  they  are  prized.  When  the  time 
arrives  that  we  are  compelled  to  work  in  or- 
3° 


HOW  MONEY  IS  OBTAINED 

der  to  get  money,  the  natural  result  follows. 
The  harder  we  have  to  work,  the  more  valu- 
able the  money  will  appear  to  us,  and  the 
greater  care  we  will  take  that  it  shall  not  be 
wasted.  The  money  that  is  given  to  children 
has  usually  been  earned  by  their  parents.  It 
represents  work  on  their  part,  often  very 
hard  work.  It  would  be  a  rude  and  unkind 
act  if  a  child,  when  receiving  a  present  of 
money,  should  immediately  fling  it  into  the 
river.  But  wasting  money  by  spending  it 
foolishly  is,  in  a  certain  sense,  flinging  it 
away.  A  little  child  will  generally  spend  a 
gift  of  money  for  candy.  That  is  natural,  and 
the  parents  expect  this  to  happen.  As  a  child 
grows  older,  however,  the  fact  is  taught  or 
discovered  that,  no  matter  how  money  is  ob- 
tained, it  must  have  been  earned  by  some- 
body in  the  first  place.  If,  then,  we  obtain 
without  work  what  some  one  else  has  worked 
for,  we  should  feel  that  a  certain  obligation 
rests  upon  us.  We  should  not  fling  away, 
directly  or  indirectly,  something  that  we  have 
obtained  so  easily,  but  for  which  the  giver 
has  worked  so  hard. 

31 


MONEY 

Money,  as  we  have  said,  must  be  earned 
by  somebody  in  the  very  beginning.  Why 
should  any  of  us  expect  to  obtain  it  in  an 
easier  way?  Why,  indeed,  should  we  even 
wish  always  to  get  something  for  which 
others  must  have  worked  ?  A  person  of 
proper  self-respect  does  not  wish  to  be  de- 
pendent always  on  another.  A  child  who 
receives  a  fixed  allowance  weekly,  learns  a 
valuable  lesson.  It  is  that,  if  the  money  is 
all  spent  on  the  day  it  is  received,  a  whole 
week  will  pass  before  any  more  money  can 
be  had.  Gradually  the  habit  grows  of  think- 
ing and  planning  before  spending.  The  next 
step  is  saving.  A  boy  may  be  told  that,  if 
a  certain  sum  is  saved,  it  can  be  used  as 
capital  in  a  little  business  of  his  own.  His 
father  may  agree  to  add  a  further  amount  of 
money  as  a  reward  for  his  perseverance  in 
saving.  If  he  lives  in  the  country,  he  may 
be  given  a  small  piece  of  ground  to  culti- 
vate. He  buys  seed  to  plant  and  a  hoe,  rake, 
spade,  or  other  necessary  articles.  Some  fruit 
or  vegetable  is  grown  that  can  easily  be  sold 
to  the  nearest  storekeepers.  Then,  when  the 


HOW  MONEY  IS  OBTAINED 

sale  has  been  made,  the  boy  has  money  of 
his  own  that  he  himself  has  earned. 

Boys  have  collected  scrap  iron,  brass,  and 
other  metals,  and  sold  this  material  to  junk 
dealers.  Sometimes  the  boys  have*  had  to  pay 
a  trifle  for  the  metal,  but  often  the  owner 
has  been  glad  to  give  it  to  them  for  their 
trouble  in  removing  it.  Other  boys  have 
spent  part  of  their  time  in  selling  a  well- 
known  weekly  magazine,  buying  a  number 
of  copies  from  the  proprietors  at  a  price  that 
will  show  a  fair  profit  when  the  magazines 
are  sold.  Other  boys  have  sold  newspapers 
on  the  same  plan.  All  these  boys  are  actually 
merchants  in  a  small  way.  Other  boys  have 
earned  money  by  working  for  local  mer- 
chants on  Saturdays  and  holidays. 

Girls  in  like  manner  have  proved  their 
ability  to  earn  money  even  before  the  time 
when  they  are  able  to  secure  regular  salaried 
positions.  Some  of  them  have  tinted  postal 
cards  or  made  water-color  sketches  and  other 
paintings,  and  have  sold  them  to  dealers,  es- 
pecially during  the  holiday  seasons.  Others 
who  have  skill  in  sewing  or  embroidery  have 
33 


MONEY 

used  that  ability  in  making  articles  of  use  or 
ornament,  and  have  sold  them  to  stores  or 
to  individual  customers.  In  every  one  of 
these  cases  the  boy  or  girl  merchant  or  pro- 
ducer has  not  only  gained  the  satisfaction  of 
earning  money,  but  in  addition  has  made 
valuable  preparation  for  the  serious  business 
of  life. 


CHAPTER  VII 
KEEPING  ACCOUNT  OF  MONEY 

AN  account  is  a  story  of  something  that 
happened.  The  best  and  clearest  account  is 
a  story  that  begins  at  the  beginning  and 
tells  everything  that  happened  in  the  order 
in  which  it  occurred.  When  the  word  "  ac- 
count "  is  used  in  a  business  sense  it  is  also 
a  story  —  a  story  of  business  happenings 
told  in  terms  of  money.  Business  histories 
of  this  nature  may  be  divided  broadly  into 
two  classes.  An  account  may  be  a  history 
of  transactions  with  a  certain  person  or  a 
history  of  transactions  of  a  certain  nature. 
The  first  is  called  a  personal  account  and  the 
second  is  called  a  business  account.  Personal 
accounts  are  explained  to  some  extent  by 
their  name.  Business  accounts  (to  make 
another  subdivision)  may  be  separated 
broadly  into  three  classes:  (i)  money  re- 
ceived and  paid;  (2)  goods  bought  and 
sold;  (3)  the  cost  of  carrying  on  the  busi- 
35 


MONEY 

ness.  These  accounts  are  named,  respec- 
tively, Cash,  Merchandise,  and  Expense. 

We  shall  now  study  the  origin  and  growth 
of  an  account  on  the  principle  applied  to 
the  study  of  money  values. 

In  a  previous  chapter  the  subject  of  debts 
has  been  treated.  The  simplest  form  of  an 
account,  and  probably  the  earliest  one,  is 
the  record  of  a  debt.  This  record  may  have 
been  inscribed,  thousands  of  years  ago,  by 
an  Assyrian  merchant  on  a  clay  tablet,  which 
was  then  baked  into  a  brick.  Or,  perhaps, 
earlier  still,  the  same  thing  may  have  been 
done  by  a  business  man  of  the  Hittites. 
Later  on,  the  Egyptians  kept  accounts  in 
hieroglyphics,  and  the  Phoenicians  made 
records  in  letters  of  their  alphabet.  The 
system  of  keeping  accounts  goes  by  the 
name  of  "  bookkeeping."  Like  all  systems 
it  has  a  technical  jargon  of  its  own.  Because 
of  the  jargon  many  people  have  received 
the  impression  that  bookkeeping,  the  sci- 
ence of  accounts,  is  difficult  to  understand. 
Such  is  not  the  case.  In  this  science  there 
is  but  one  rule  to  be  learned  by  heart.  This 


KEEPING  ACCOUNT  OF  MONEY 

rule  is  the  corner-stone  of  the  system;  and 
it  never  varies.  In  the  study  of  foreign  lan- 
guages, for  instance,  the  rules  of  grammar 
have  many  exceptions.  In  bookkeeping  there 
is  one  rule  and  no  exception.  We  shall  now 
try  to  trace  this  fundamental  rule. 

Business  transactions  with  a  person  may 
be  of  two  kinds,  value  given  him  and  value 
received  from  him.  In  the  earliest  accounts 
—  namely,  records  of  debts  —  the  merchant 
wrote  the  name  of  the  person  who  owed 
him  money,  then  probably  a  description  of 
what  was  sold  to  this  person,  and  finally 
the  amount  he  owed.  When  the  person  paid 
his  debt  it  is  probable  that  no  record  of  the 
payment  was  made.  The  clay  tablet  was 
simply  broken  by  the  Hittite  or  Assyrian 
merchant. 

Oriental  nations,  as  a  rule,  write  from 
right  to  left,  and  therefore  the  inscription 
recording  a  debt  probably  was  begun  at  the 
right  side  of  the  clay  tablet.  The  Greeks 
and  Romans,  who  did  their  writing  from 
left  to  right,  doubtless  began  their  accounts 
on  the  left  side  of  the  papyrus  or  wax  tab- 
37 


MONEY 

lets  used  by  them.  The  inventors  of  mod- 
ern bookkeeping,  being  descendants  of  the 
Romans,  followed  this  course,  and  thus,  in 
all  probability,  the  custom  arose  of  record- 
ing debts  due  by  a  customer  on  the  left  side 
of  an  account.  However  this  may  be,  it  is 
a  fact  that  this  custom  exists.  In  telling  the 
story  of  business  transactions,  —  that  is  to 
say,  in  keeping  accounts,  —  we  must  follow 
this  custom,  in  order  that  our  story  may  be 
intelligible  to  the  readers. 

We  have  seen  that  the  earliest  and  sim- 
plest account  was  probably  a  record  of  a 
single  debt.  When  the  debt  was  paid,  the 
account  was  destroyed.  Gradually  the  rec- 
ords became  more  complex,  when  debts  and 
payments  alternated,  and  when  partial  pay- 
ments were  made.  Breaking  a  clay  tablet, 
or  drawing  a  canceling  line  through  a  papy- 
rus record,  or  smoothing  the  surface  of  a 
wax  tablet  was  found  too  primitive  and  un- 
satisfactory a  method  of  recording  pay- 
ments. At  first  the  written  records  of  debts 
and  their  payment  followed  each  other  in 
the  order  of  their  occurrence.  But  this  was 

38 


KEEPING  ACCOUNT  OF  MONEY 

found  unsatisfactory  in  its  turn.  A  record 
was  needed  which  would  show  quickly  how 
much  money  was  owed  by  the  person  whose 
name  was  at  the  head  of  the  account.  A 
line  was  drawn  down  the  center  of  the  rec- 
ord, dividing  the  debts  from  the  payments; 
on  the  right  side  payments  were  recorded; 
and  both  debts  and  payments  were  entered 
in  the  order  of  their  occurrence.  The  whole 
story  was  told  and  its  conclusion  was  clearly 
understood  by  the  reader.  Thus,  in  all 
probability,  common  sense  and  custom 
brought  about  the  adoption  of  the  one 
rule,  the  fundamental  rule^  of  the  science  of 
accounts.  On  the  left-hand  side  of  the  ac- 
count were  recorded  the  values  of  all  that 
the  customer  received — in  other  words,  his 
debts.  On  the  right-hand  side  of  the  ac- 
count were  recorded  the  payments  made  by 
the  customer  to  offset  his  indebtedness. 
The  rule  of  bookkeeping,  then,  is  as  fol- 
lows :  "  Charge  an  account  with  the  value 
of  all  that  it  receives  ;  and  credit  an  account 
with  the  value  of  all  that  it  gives."  Every- 
thing that  is  done  in  accounting,  from  be- 
39 


MONEY 

ginning  to  end,  without  exception,  is  done 
in  accordance  with  this  rule.  Bookkeeping 
may  be  said  to  be  composed  of  addition, 
multiplication,  and  common  sense. 

This  rule,  which  appears  so  logical  when 
applied  to  personal  accounts,  can  also  be 
made  to  appear  equally  clear  in  its  applica- 
tion when  business  accounts  are  in  question. 
This  is  particularly  the  case  with  those  who 
are  beginning  the  study  of  bookkeeping. 
Suppose,  for  example,  we  take  a  transaction 
in  which  a  man  pays  money  in  settlement 
of  a  debt  previously  contracted.  A  cus- 
tomer named  Edward  C.  Williams,  who 
bought  one  hundred  dollars'  worth  of  goods 
some  time  ago,  without  paying  for  them, 
now  comes  and  pays  one  hundred  dollars. 
According  to  the  rule,  his  account  must  be 
credited  with  one  hundred  dollars.  It  is  not 
clear  to  the  beginner  why  the  Cash  Account 
must  be  charged  with  one  hundred  dollars. 
Nevertheless,  it  is  a  fact  that  the  Cash  Ac- 
count must  be  so  charged  or  debited  —  these 
two  words  having  the  same  meaning.  Let 
us  now  proceed  to  analyze  the  transaction. 
40 


KEEPING  ACCOUNT  OF  MONEY 

We  will  put  aside,  for  the  moment,  all 
consideration  of  Cash  Account  as  an  ab- 
stract idea,  and  confine  our  attention  to  per- 
sonal accounts  alone.  We  will  suppose  that,, 
when  the  business  is  started,  a  young  rela- 
tive of  the  proprietor,  named  Henry  Jones, 
wishes  to  obtain  a  practical  knowledge  of 
business.  He  agrees,  in  exchange  for  the 
information  he  will  gain  thereby,  to  act  as 
cashier  for  a  time.  He  is  given  the  key  to 
the  cash  drawer  and  the  combination  to  the 
safe,  and  is  placed  in  full  charge  of  the 
money.  On  the  day  that  the  business  opens, 
the  proprietor  has  one  thousand  dollars  in 
currency.  This  sum  he  hands  to  Jones, 
who  locks  it  up  in  the  safe.  It  is  quite  evi- 
dent that  this  sum  of  money  is  not  the  per- 
sonal property  of  Jones.  It  is  the  property 
of  the  proprietor,  held  in  trust  by  Jones, 
and  subject  to  the  demand  of  the  owner. 
In  other  words,  it  is  a  debt  owed  by  Jones 
to  the  business.  It  is  therefore  perfectly 
proper  to  open  an  account  on  the  books  of 
the  business  under  the  heading  "  Henry 
Jones,"  and  to  charge  that  account  with 


MONEY 

one  thousand  dollars.  Now,  let  us  suppose 
that  a  customer  buys  ten  dollars'  worth  of 
goods  and  pays  for  them  in  cash.  The  cus- 
tomer is  a  stranger.  We  do  not  know  his 
name,  and  we  do  not  need  to  know  it.  The 
proprietor  sells  the  goods,  hands  them  to 
the  customer,  and  receives  the  money. 
Then,  after  the  customer  has  gone  away, 
the  proprietor  hands  the  ten  dollars  to 
Jones,  who  locks  the  money  up  in  the  cash 
drawer.  Evidently  he  owes  the  business 
ten  dollars  more,  and  the  account  of  Henry 
Jones  is  therefore  charged  with  ten  dollars 
in  addition  to  the  previous  charge  of  one 
thousand  dollars. 

Leaving  this  form  of  transaction  for  the 
time  being,  let  us  suppose  that  another  cus- 
tomer, J.  J.  Stone,  buys  one  hundred  dol- 
lars' worth  of  goods,  but  does  not  pay  for 
them.  Under  the  rule,  his  account  is  charged 
with  one  hundred  dollars.  A  month  later, 
Stone  comes  in  and  pays  one  hundred  dol- 
lars in  cash.  According  to  the  rule,  his  ac- 
count is  then  credited  with  one  hundred 
dollars.  But  something  else  has  happened 
42 


KEEPING  ACCOUNT  OF  MONEY 

besides  the  payment  by  Stone.  The  money 
that  he  has  given  to  the  proprietor  has  been 
handed  by  the  latter  to  Jones,  who  has 
locked  it  up  in  the  safe.  It  is  not  sufficient 
to  credit  the  account  of  Stone  with  one 
hundred  dollars.  Another  account  is  in- 
volved. Henry  Jones  must  be  charged  with 
one  hundred  dollars.  Not  only  must  the  ac- 
count that  gives  be  credited,  but  the  account 
that  receives  must  be  charged.  This  is  the 
rule.  Stone  has  given,  and  Jones  has  re- 
ceived. 

So  far  as  practical  results  are  concerned, 
it  makes  no  difference  whether  the  account 
of  the  person  who  has  charge  of  the  money 
in  this  case  is  kept  under  the  heading  "  Henry 
Jones"  or  under  the  heading  "Cash."  It 
is  the  custom,  however,  to  give  the  title 
"Cash"  to  the  account  of  the  cashier,  what- 
ever the  name  of  the  cashier  may  be. 

Let  us  now  consider  the  three  classes  of 
business  accounts,  Cash,  Merchandise,  and 
Expense.  In  order  to  become  familiar  with 
them,  they  can  all  be  represented  as  persons 
if  we  so  desire.  Cash  Account  can  be  our 
43 


MONEY 

account  with  the  person  who  has  charge  of 
the  money  —  in  other  words,  our  cashier. 
Merchandise  Account  may  be  our  account 
with  the  person  who  has  charge  of  the  goods 
—  namely,  our  stock  clerk.  Expense  may 
be  our  account  with  the  person  authorized  to 
provide  everything  necessary  for  the  proper 
conduct  of  our  business. 

Let  us  take  the  first  of  these  accounts ; 
for  example,  cash  which  has  been  received 
by  the  business.  It  may  be  money  con- 
tributed by  the  owner  as  capital ;  it  may  be 
money  received  from  the  sale  of  goods  ;  or 
it  may  be  money  paid  by  a  customer  in  set- 
tlement of  a  debt.  In  any  case,  this  cash  is 
handed  to  the  cashier.  It  is  not  the  property 
of  the  cashier;  but  it  is  the  property  of  the 
business,  temporarily  in  the  hands  of  the 
cashier  for  safe-keeping.  In  other  words,  it 
is  a  debt  owed  by  the  cashier  to  the  business. 
The  cashier  has  received  value,  and  conse- 
quently owes  that  value  to  the  business.  The 
rule  of  bookkeeping  is  applied,  and  the  ac- 
count of  the  cashier — namely,  Cash  Ac- 
count—  is  charged. 


KEEPING  ACCOUNT  OF  MONEY 

Later  on,  cash  is  paid  out  by  the  business. 
It  may  be  money  withdrawn  by  the  owner 
for  personal  expenses.  1 1  may  be  money  paid 
for  the  purchase  of  goods,  or  it  may  be 
money  paid  to  a  creditor  in  settlement  of  a 
debt.  In  any  case,  the  cashier  is  directed  to 
pay,  and  he  does  pay.  The  money  paid  by 
the  cashier  is  not  his  own  property,  but  it 
is  the  property  of  the  business.  In  other 
words,  the  cashier,  when  he  is  directed  to 
pay  out  money  and  obeys  his  instructions, 
is  thereby  returning  to  the  business  a  part 
of  the  money  which  he  owed  to  the  business. 
The  rule  of  bookkeeping  is  applied,  and  the 
account  of  the  cashier  —  namely,  Cash  Ac- 
count—  is  credited. 

The  Merchandise  Account  can  be  treated 
as  a  person  in  like  manner.  When  goods  are 
bought  with  the  intention  of  selling  them  at 
a  profit,  these  goods  are  given  into  the  care 
of  the  stock  clerk.  His  account  —  namely, 
Merchandise  —  is  charged  with  the  cost  of 
the  goods.  This  is  done  because  the  goods 
are  not  the  property  of  the  stock  clerk,  and 
he  owes  the  business  the  amount  the  goods 
45 


MONEY 

are  worth.  When  he  returns  the  goods,  he 
ceases  to  owe  for  them,  and  the  debt  is 
thereby  paid.  But  when  goods  are  sold,  the 
stock  clerk  is  directed  to  deliver  them  to  the 
customer.  When  he  does  so,  he  has  practi- 
cally returned  the  goods  to  the  business  from 
which  he  received  them.  The  account  of 
the  stock  clerk  —  namely,  Merchandise  Ac- 
count—  is  therefore  credited  with  the  value 
of  these  goods  delivered  by  him  for  which 
he  no  longer  owes  the  business. 

The  difference  between  the  Merchandise 
Account  and  the  Expense  Account  is  theo- 
retical, although  the  application  of  the  rule 
to  these  accounts  is  eminently  practical.  The 
difference  is  one  of  intention.  The  Mer- 
chandise Account  is  charged  with  the  cost  of 
things  purchased  with  the  intention  of  sell- 
ing them  again  for  profit.  The  Expense  Ac- 
count is  charged  with  the  cost  of  things  pur- 
chased with  no  intention  of  selling  them  again 
for  profit  or  otherwise.  In  the  operation  of 
any  business,  however,  it  is  necessary  to  pay 
out  sums  of  money  for  such  items  as  fuel, 
light,  clerk  hire,  stationery,  etc. ;  and  these 
46 


KEEPING  ACCOUNT  OF  MONEY 

items  are  usually  spoken  of  as  expense 
items.  These  expenses,  and  others  of  a  simi- 
lar nature,  are  properly  charged  (debited) 
to  the  Expense  Account. 

Before  explaining  separately  the  specimen 
accounts  that  are  shown  on  pages  48  and 
49,  a  few  words  of  general  explanation  are 
needed. 

The  difference,  in  dollars  and  cents,  be- 
tween the  two  sides  of  each  account,  shows 
whether  this  account  owes  money  to  the 
business  or  is  owed  money  by  the  business. 
The  accounts  are  kept  in  order  that  this  in- 
formation can  be  obtained  at  any  time. 

Every  entry  in  every  account  is  dated, 
and  the  first  entry  in  every  account  is  a 
guide  to  the  nature  of  that  account.  For 
example,  if  the  first  entry  in  an  account  is 
a  charge  for  merchandise,  it  is  almost  cer- 
tain that  it  is  the  account  of  a  customer.  On 
the  other  hand,  if  the  first  entry  is  a  credit 
for  merchandise,  we  may  be  practically  sure 
that  this  is  the  account  of  one  of  the  firm's 
creditors. 

The  account  of  Philip  S.  Morgan  is  that 
47 


MONEY 


§ 

o 

o 

1 

§ 

0 

s 
M- 





^ 

I 

1 

| 

3 

1 

R 

! 

s 

s 

Xrj                                            «_ 
C\|                                               (T\ 

cs 

1*    s 

||                       | 

ll 

.                      .R 

=                               h*^ 

, 

CO 

§s 

O   O                               .  ,, 

o 

•"S" 

B 

^°                 fe 

o 

$ 

R^ 

_                                                          ^> 

t^  0                            .£j 
^^j                              § 

1 

1 

. 

0   O 

1 

i 

s 

* 

Xi 

o 

^o 

*t 

** 

^A, 

48 


KEEPING  ACCOUNT  OF  MONEY 


c! 


4 

« 
<a 

-Si 


t^  o  o  o 

OQ  <M  <v»  ts, 

s  s  s 


49 


MONEY 

of  the  proprietor  of  the  business.  On  Sep- 
tember i  he  invested  $750  in  cash.  The 
business  owed  him  that  much  money  and 
his  account  with  the  business  was  therefore 
credited  with  that  amount.  On  September 
20  he  drew  out  $10  for  personal  use,  and 
he  was  charged  with  that  sum,  because  the 
business  owed  him  then,  not  #750,  but  $10 
less. 

The  first  entry  in  the  account  of  Benja- 
min F.  Lee  was  a  charge  on  September  6 
of  $  1 87. 50  for  30  Brls  Flour.  Evidently 
this  man  is  a  customer  who  has  bought 
thirty  barrels  of  flour  without  paying  for  it 
at  the  time  of  purchase.  He  is  a  debtor  to 
the  business  for  the  value  of  the  flour,  and 
has  therefore  been  debited  (or  charged)  for 
it.  On  September  14  he  made  another  pur- 
chase on  the  same  terms  and  again  he  has 
been  charged.  On  September  25  his  account 
has  been  credited  with  $100  for  cash.  This 
means  that  on  September  25  he  made  a 
payment  of  $100  to  offset  part  of  what  he 
owed.  The  debit  side  of  his  account  is  now 
^307.50  and  the  credit  side  is  $100.  The 
50 


KEEPING  ACCOUNT  OF  MONEY 

difference  shows  that  Benjamin  F.  Lee  owes 
the  business  $207. 50. 

The  account  of  Francis  H.  Leggett  &Co. 
is  started  with  a  credit  of  $410  on  September 
9  for  40  Brls  Sugar.  The  business  bought 
this  sugar  on  that  date  from  Leggett  &  Co. 
without  paying  for  it.  Leggett  &  Co.  are 
creditors  of  the  business  and  their  account 
was  given  credit  for  the  amount  owed  them. 
On  September  28,  a  cash  payment  of  $200 
was  made  and  charged  to  their  account. 
The  difference  between  the  two  sides  of  the 
account  shows  that  Francis  H.  Leggett  & 
Co.  are  still  creditors  of  the  business  for  $210. 

The  Cash  Account  was  begun  by  a  charge 
of  $750.  This  is  the  money  invested  by  the 
proprietor.  He  was  given  credit  because  the 
business  owed  him  what  he  invested.  But 
Cash  Account  was  charged  because  the  cash 
department  owed  the  business  the  sum  of 
$750,  which  had  been  handed  to  that  de- 
partment for  safe-keeping.  Cash  Account 
was  charged  again  with  the  money  that  came 
in  from  the  sales  of  merchandise  and  for  a 
payment  by  B.  F.  Lee.  Lee  was  given  credit 


MONEY 

in  his  account  for  this  payment,  but  cash  is 
charged  because,  when  the  money  was  re- 
ceived from  Lee,  it  was  given  to  the  cash 
department  for  safe-keeping. 

On  the  credit  side  of  Cash  Account  are 
entered,  in  succession,  all  the  payments 
made  in  cash,  whether  these  payments  were 
for  merchandise  or  for  expenses,  or  to  the 
proprietor  or  to  reduce  the  indebtedness  of 
the  business  to  a  creditor.  Whatever  the 
reason  for  a  payment  may  be,  the  moment 
that  the  cash  has  been  paid  out,  the  Cash 
Account  holds  that  much  less  money  for 
which  it  is  responsible  to  the  business. 

Merchandise  Account  is  charged  with  the 
value  of  all  goods  bought,  on  the  date  of 
their  purchase,  whether  they  were  paid  for 
or  not,  and  is  credited  with  the  value  of  all 
good  sold,  on  the  date  of  the  sale,  whether 
payment  was  received  for  them  or  not. 

The  difference  between  the  two  sides  of 
the  Cash  Account  shows  how  much  money 
the  cash  department  owes  to  the  business, 
or,  in  other  words,  what  is  the  amount  of 
"cash  on  hand."  The  difference  between 
52 


KEEPING  ACCOUNT  OF  MONEY 

the  two  sides  of  the  Merchandise  Account 
shows  (approximately)  the  value  of  the  un- 
sold goods,  for  which  this  department  is 
responsible  to  the  business.  The  word  "ap- 
proximately "  is  used,  because  the  amounts 
of  money  credited  to  Merchandise  Account, 
when  sales  are  made,  include  the  profits  on 
these  sales.  The  way  in  which  these  prof- 
its are  dealt  with  is  a  part  of  the  science  of 
accounts,  or  bookkeeping. 

Expense  Account  is  charged  with  the  cost 
of  everything  that  is  bought  for  use  in 
carrying  on  the  business,  but  not  for  the 
purpose  of  sale. 


CHAPTER  VIII  * 
SUBSTITUTES   FOR    MONEY 

FROM  the  very  early  ages  until  the  pres- 
ent day,  gold  and  silver  coins  have  been  the 
real  money  of  the  world.  All  through  an- 
cient times  and  through  what  are  known  as 
the  Middle  Ages,  people  managed  to  get 
along  and  transact  their  affairs  without  any 
real  substitute  for  coins.  It  is  true  that  dur- 
ing that  early  period  a  means  was  adopted 
to  avoid  the  necessity  of  carrying  large 
amounts  of  coined  money  for  great  distances. 
Merchants  in  one  city,  for  example,  were 
accustomed  to  transact  business  with  mer- 
chants in  a  far-distant  city.  These  cities 
may  have  been  Rome  in  Italy  and  Alexan- 
dria in  Egypt,  among  many  others.  A  man 
in  Rome  who  was  about  to  travel  to  Alex- 
andria would  deposit  a  sum  of  money  with 
a  merchant  in  Rome.  The  merchant  would 
give  him  a  form  of  letter  addressed  to  a 
merchant  in  Alexandria,  directing  the  latter 
54 


SUBSTITUTES  FOR  MONEY 

to  pay  the  same  amount  of  money  to  the 
traveler  upon  his  arrival  in  Alexandria.  In 
this  way  the  necessity  was  avoided  of  trans- 
porting the  coin  on  what  was  then  a  very 
long  and  often  dangerous  journey.  The  Ro- 
man merchant  would,  of  course,  receive  pay- 
ment for  affording  this  convenience,  and  the 
two  merchants  would  settle  their  accounts 
by  means  of  the  merchandise  which  they 
were  accustomed  to  ship  to  each  other. 

The  particular  kind  of  letter  which  was 
given  in  such  a  case  was  known  as  a  bill  of 
exchange.  It  was  a  convenience,  and  a  great 
one,  but  it  was  not  in  all  respects  a  substi- 
tute for  money. 

It  was  not  until  modern  times  that  real 
substitutes  for  money  were  adopted.  The 
business  of  banking  has  long  been  in  exist- 
ence. It  is  known  that,  in  the  year  1270, 
the  Government  of  Venice  required  security 
to  be  given  by  money-changers  as  a  condi- 
tion on  which  they  were  allowed  to  do  busi- 
ness. There  is  no  record  that  the  money- 
changers in  that  year  received  deposits  from 
their  customers.  But  in  the  year  1318  an 
55 


MONEY 

act  of  the  Venetian  Senate  recognized  the 
receipt  of  deposits  by  money-changers  as  an 
existing  practice.  Thus,  between  1270  and 
1318,  the  money-changers  of  Venice  were 
becoming  bankers.  The  first  public  bank  in 
Europe  was  the  Banco  di  Rialto  in  Venice, 
established  in  1584. 

Beginning  in  the  year  1656,  banks  were 
permitted  to  issue  written  promises  to  pay 
certain  sums  of  money  whenever  the  holders 
of  such  papers  presented  them  and  de- 
manded payment.  Such  papers  were  more 
convenient  to  carry  than  pieces  of  gold  and 
silver.  Where  a  bank  had  a  high  reputation, 
and  people  did  not  doubt  its  ability  to  pay 
whenever  demand  was  made,  such  written 
promises  were  often  preferred  to  coin  as  a 
matter  of  convenience.  They  were  known 
as  bank-notes.  In  China,  bank-notes  were 
current  about  the  year  800.  They  were  first 
used  in  Europe  by  the  Bank  of  Sweden 
about  1656. 

The  privilege  of  issuing  bank-notes  was 
extended  by  degrees  to  many  institutions, 
especially  in  England  in  the  early  years  of 

56 


SUBSTITUTES  FOR  MONEY 

the  nineteenth  century.  Sufficient  care  was 
not  taken  in  selecting  the  bankers  to  whom 
this  privilege  was  given,  and  in  many  in- 
stances they  were  unable  to  pay  when  the 
time  came  that  the  money  was  demanded.  It 
was  considered  by  everybody,  however,  that 
governments  themselves  were  certain  to  pay 
if  they  promised  to  do  so.  As  early  as  the 
eighteenth  century,  therefore,  banks  were 
established  under  the  direct  authority  and 
control  of  governments,  and  these  banks 
issued  bank-notes  that  were  gladly  received 
throughout  the  kingdom  —  for  example,  in 
England  and  France.  Following  this  prac- 
tice, governments  began  to  issue  notes  them- 
selves without  using  banks  as  their  agents. 
Such  notes  were  known  as  government  notes. 
They  were  issued  in  America  by  the  Conti- 
nental Congress  at  the  time  of  the  Ameri- 
can Revolution.  As  the  war  with  Great 
Britain  progressed,  the  Congress  became 
unable  to  pay  coin  for  the  notes  when  it 
was  demanded,  and  the  result  followed  that 
"  Continental  money,"  as  it  was  called,  be- 
came much  less  valuable  than  coin.  The 
57 


MONEY 

notes  of  the  United  States  to-day,  however, 
can  always  be  exchanged  for  coin  whenever 
the  holders  of  the  notes  make  a  demand  for 
it.  To-day,  therefore,  practically  every  one 
prefers  to  carry  government  notes,  or  bank- 
notes guaranteed  by  the  Government,  in- 
stead of  money. 

There  is  another  substitute  for  money 
which  is  even  more  convenient.  Indeed, 
business  as  it  exists  could  not  be  conducted 
without  such  substitutes,  which  are  known 
as  checks. 

When  money  is  deposited  in  a  bank,  it  is 
usually  the  case  that  the  bank  promises  to 
pay  it  back  to  the  depositor  whenever  it  is 
demanded.  He  can  go  to  the  bank,  ask  for 
whatever  part  of  his  money  he  wishes  to 
take  out,  and  he  will  receive  it  at  once.  It 
is  not  necessary,  however,  for  the  depositor 
to  go  to  the  bank  himself  for  this  purpose. 
An  arrangement  is  made  by  which  he  can 
write  an  order  for  the  bank  to  pay  money, 
whenever  it  is  demanded,  to  any  one  named 
in  the  order.  The  bank  agrees  to  pay  as 
many  such  orders  as  the  depositor  may 
58 


SUBSTITUTES  FOR  MONEY 

write,  and  to  pay  them  as  soon  as  they  are 
presented  at  the  bank,  provided  always  that 
the  total  amount  of  money  called  for  by  the 
orders  does  not  exceed  the  amount  of  money 
which  has  been  deposited.  Such  an  order 
on  a  bank  is  called  a  check. 

It  can  easily  be  seen  that  a  check  is  not 
only  a  convenience,  but  that  it  adds  safety 
to  a  business  transaction.  Coined  money,  if 
it  is  lost  or  stolen,  is  almost  impossible  to 
trace.  Bank-notes  can  be  identified,  as  each 
one  bears  a  different  number,  but  it  is  diffi- 
cult to  trace  them  even  when  their  numbers 
are  known.  A  check,  however,  is  payable  to 
a  certain  person  whose  name  is  written  on 
it.  If  a  bank  pays  the  money  to  any  other 
person  the  bank  must  suffer  the  loss,  and 
not  the  person  who  has  written  the  check. 

Checks  are  also  of  value  because  they  are 
a  proof  that  money  has  been  received  by  the 
persons  to  whose  order  they  are  drawn. 
When  a  man  receives  a  check  from  a  depos- 
itor in  a  bank,  he  can  get  his  money  as  soon 
as  he  demands  it  from  the  bank.  He  is 
obliged,  however,  to  satisfy  the  bank  that  he 
59 


MONEY 

is  really  the  person  named  in  the  check,  and 
then  it  is  necessary  for  him  to  write  his 
name  on  the  back  of  the  check  and  leave  it 
with  the  bank  when  he  receives  the  money. 
The  bank  gives  each  depositor,  from  time 
to  time,  a  written  statement  of  how  his  ac- 
count stands.  At  such  time  the  bank  re- 
turns to  the  depositor  all  the  checks  that 
have  been  paid.  The  depositor,  if  he  is  wise, 
will  keep  these  paid  checks.  If  at  any  time 
a  dispute  arises  as  to  whether  money  has 
been  paid,  the  depositor  can  find  the  check 
which  he  drew  and  by  means  of  which  the 
payment  was  made.  On  the  back  of  the 
check  will  be  found  the  signature  of  the 
man  to  whose  order  the  check  was  drawn, 
and  this  is  proof  that  the  man  has  received 
the  amount  of  money  named. 


CHAPTER  IX 

BANKING 

ALMOST  every  one  who  wishes  for  money 
and  tries  to  get  it  is  engaged  in  selling 
something  for  money.  That  which  is  sold 
is  the  person's  labor,  or  it  is  something  that 
he  has  bought  and  improved  by  his  labor, 
or  it  is  something  that  he  has  bought  and 
tries  to  sell  for  more  than  he  paid  for  it. 
Working-men,  and  professional  men,  such 
as  doctors,  lawyers,  teachers,  and  architects, 
sell  their  labor.  Artisans,  such  as  tailors 
and  carpenters,  if  they  buy  their  own  cloth 
or  building  material,  and  artists,  such  as 
painters  and  sculptors,  sell  what  they  have 
bought  and  improved  by  their  labor.  Per- 
sons who  buy  articles  with  the  intention  of 
selling  the  same  articles  for  more  money, 
are  called  merchants,  and  that  which  they 
buy  and  sell  is  called  merchandise. 

There  are  certain  merchants  whose  mer- 
chandise is  money.  They  buy  and  sell  money. 
61 


MONEY 

That  which  they  give  or  receive  in  payment 
is  a  written  promise  to  return  the  money 
with  a  payment  for  interest  in  addition. 
Such  merchants  are  called  bankers. 

Money  can  be  sold,  of  course,  in  the 
form  of  actual  coin ;  and  this  is  done  con- 
tinually. The  merchants  who  make  this 
their  business  are  called  money-brokers.  But 
this  form  of  transaction  is  not  part  of  the 
business  of  regular  bankers.  Bankers  sell 
money  in  two  ways.  The  first  way  is  to  hand 
the  money  to  a  customer  and  receive  his 
written  promise  to  pay  the  money  back  at 
a  future  time  with  a  payment  for  interest 
added.  This  transaction  is  called  a  loan. 

The  second  way  is  for  a  customer  to 
hand  the  banker  a  written  promise  to  pay 
money  (either  his  own  or  else  a  written 
promise  which  he,  the  customer,  has  ob- 
tained from  some  one  else).  In  return,  the 
banker  gives  the  customer  a  sum  of  money 
less  than  the  amount  named  in  the  written 
promise.  This  transaction  is  called  a  dis- 
count. The  second  method  is  almost  always 
used  when  the  customer  is  giving  a  written 
62 


BANKING 

promise  to  pay  at  a  fixed  future  date.  The 
first  method  is  always  used  when  the  loan 
is  "  on  call " ;  that  is,  when  the  written 
promise  is  to  pay  at  no  definite  time,  but 
whenever  the  money  is  demanded.  The 
first  method  is  also  used  occasionally  even 
when  a  fixed  time  for  payment  is  named. 

We  have  said  that  bankers  buy  money 
as  well  as  sell  it.  One  way  in  which  they 
buy  money  is  by  issuing  bank-notes,  which 
were  explained  in  the  previous  chapter.  The 
banker  receives  money  and  gives  in  ex- 
change bank-notes  which  are  his  written 
promises  to  pay  back  the  money  whenever 
it  is  demanded. 

The  way  in  which  banks  obtain  the  greater 
part  of  the  money  which  they  use,  however, 
is  from  deposits.  A  customer  hands  money 
to  the  bank  and  in  exchange  receives  a  pass- 
book in  which  is  entered  the  amount  of  his 
deposit.  The  bank  agrees  that  the  customer 
can  draw  out  his  money  whenever  he  wishes, 
either  by  presenting  the  passbook  (as  in  the 
case  of  savings  banks)  or  by  writing  checks. 
Practically  the  bank  buys  money  of  the  cus- 

63 


MONEY 

tomer  and  gives  in  exchange  a  written  prom- 
ise to  repay  it.  The  passbook  is  this  written 
promise.  The  bank  knows  that  all  the  cus- 
tomers will  not  demand  all  the  money  back 
at  once.  As  a  matter  of  fact,  most  banks 
keep  on  hand  about  one  quarter  of  the 
amount  of  their  deposits  for  the  purpose  of 
paying  the  demands  of  customers.  The  rest 
of  the  deposits  they  use  for  the  purpose  of 
making  profits ;  that  is,  loaning  it  and  re- 
ceiving payment  for  its  use. 

When  money  is  the  merchandise  in  which 
dealings  are  made,  it  can  thus  be  seen  that 
lending  money  is  selling  and  borrowing 
money  is  buying.  The  price  in  each  case  is 
a  written  promise  to  pay.  The  methods  by 
which  banks  make  their  profits  are  loans 
and  discounts  —  sometimes  by  one  of  these 
methods,  sometimes  by  both. 

When  a  banker  makes  a  loan,  the  cus- 
tomer, in  addition  to  giving  a  written  prom- 
ise to  repay  the  money,  usually  deposits 
with  the  banker  something  of  value.  This 
deposit  is  made  for  the  security  of  the 
banker.  In  case  the  customer  does  not  re- 


BANKING 

pay  the  money  as  promised,  the  banker  can 
take  the  article  of  value  and  sell  it,  and 
repay  himself  out  of  the  money  thus  ob- 
tained. That  which  the  customer  deposits 
with  the  banker  as  security  is  called  collat- 
eral^ and  the  loan  is  called  a  collateral  loan. 
Savings  banks  will  lend  money  when  real 
estate  is  given  as  security,  but  other  banks 
require  security  that  can  be  sold  quickly, 
and  therefore  will  not  accept  real  estate. 

Bonds  and  stocks,  which  will  be  explained 
later,  are  often  given  as  bank  collateral,  and 
also  papers  which  show  that  merchandise 
has  been  deposited  by  the  customer  in  some 
particular  place  and  is  owned  by  him.  Such 
papers  are  called  bills  of  lading  and  ware- 
house receipts.  When  a  person  deposits  his 
watch,  or  a  ring,  with  a  pawnbroker,  as 
security,  and  borrows  money,  the  transac- 
tion is  a  collateral  loan.  The  pawnbroker  is 
doing  on  a  small  scale  what  the  banker  does 
on  a  large  scale. 

When  a  bank  receives  from  a  customer 
no  security,  but  only  his  written  promise  to 
pay,  the  transaction  usually  comes  under 
65 


MONEY 

the  head  of  discounts.  The  bank  buys  the 
note  (as  this  promise  is  called)  from  the 
customer.  The  price  is  the  amount  of 
money  named  in  the  note  after  the  bank 
has  deducted  a  payment  for  interest  in 
advance  for  the  time  that  is  to  elapse  before 
the  money  is  to  be  repaid.  Sometimes,  in 
such  cases,  the  bank  requires  the  note  to  be 
endorsed.  That  is  to  say,  the  customer  must 
induce  some  one  to  write  his  name  on  the 
back  of  the  note,  by  which,  under  the  law, 
he  guarantees  that  the  note  will  be  paid  at 
the  promised  time.  The  person  who  en- 
dorses the  note  must,  of  course,  be  some 
one  whose  name  is  satisfactory  to  the  bank. 

Banks  also  discount  drafts.  A  draft  is  a 
written  order  directing  some  one  to  pay 
money  to  some  one  else.  This  order  may 
direct  the  money  to  be  paid  at  once  or  else 
at  a  future  time.  In  the  first  case  it  is  a 
demand  draft ;  in  the  second  case  it  is  a  time 
draft.  A  check  is  a  demand  draft  on  a 
bank. 

To  illustrate  the  discounting  of  a  draft, 
let  us  suppose  that  Henry  W.  Smith  sells 
66 


BANKING 

$1000  worth  of  merchandise  to  Edward  A. 
Jones.  The  terms  of  the  sale  are  that  Jones 
is  to  pay  the  money  in  sixty  days,  and  that 
Smith,  if  he  wishes  to  do  so,  can  write  an  order 
(draw  a  draft,  it  is  called)  directing  Jones 
to  pay  $1000  in  sixty  days  to  any  one  that 
Smith  may  choose  to  name.  Now,  in  case 
Smith  does  not  wish  to  wait  sixty  days 
for  his  money,  he  signs  a  draft  on  Jones, 
directing  him  to  pay  the  thousand  dol- 
lars in  sixty  days  to  Smith's  bank.  Smith 
then  takes  the  draft  to  his  bank  and  dis- 
counts it.  That  is  to  say,  the  bank  buys 
the  draft  from  Smith  for  nine  hundred  and 
ninety  dollars.  This  sum  is  the  amount  of 
the  draft  after  sixty  days'  interest  (or  $10) 
has  been  deducted.  The  bank  then  pre- 
sents the  draft  to  Jones  and  asks  him  to 
accept  it.  This  means  that  Jones  writes 
across  the  face  of  the  draft  a  promise  to  pay 
it  when  the  sixty  days  have  passed.  Some- 
times the  bank  will  ask  the  customer  to 
have  the  draft  accepted  before  it  will  agree 
to  discount  it.  It  depends  on  the  reputa- 
tion of  the  customer  as  to  how  far  the  bank 

67 


MONEY 

will  trust  him  and  how  much  business  it 
will  do  with  him.  A  very  celebrated  Amer- 
ican banker  said  to  a  committee  of  the 
Congress  of  the  United  States  that  he 
would  do  business  more  readily  with  a  man 
of  small  means  and  good  reputation  than 
with  a  very  wealthy  man  whom  he  did  not 
trust. 

Banks  are  of  four  kinds,  private  banks, 
state  banks,  national  banks,  and  federal  re- 
serve banks.  Many  private  bankers  are  of 
very  high  reputation,  and  are  considered  safe 
to  deal  with.  Sometimes,  however,  the  news- 
papers contain  a  report  that  some  private 
banker  has  failed.  In  order  to  safeguard  de- 
positors, state  banks  and  national  banks  have 
been  established  in  this  country.  They  are 
under  the  regulation,  respectively,  of  the 
State  in  which  they  are  established,  and  of 
the  Government  of  the  United  States.  About 
eighty  years  ago  many  state  banks  did  busi- 
ness by  careless  or  risky  methods,  and  there 
were  many  bank  failures.  State  banks  at  that 
time  were  permitted  to  issue  bank-notes, 
many  of  which  went  by  the  name  of  "  wild- 
68 


BANKING 

cat  bank-notes."  At  present  state  banks  and 
national  banks  are  under  careful  supervision, 
and  failures  are  very  rare.  The  only  banks 
in  this  country  that  issue  bank-notes  are 
national  banks  and  federal  reserve  banks. 
The  latter  are  also  under  the  supervision  of 
the  United  States  Government.  Their  bank- 
notes are  so  thoroughly  protected  that  they 
are  received  all  over  the  land  as  readily  as  are 
government  notes.  When  a  five-dollar  bill 
is  received  in  the  course  of  business,  few 
persons  take  the  trouble  to  examine  it  to 
see  whether  it  is  a  government  note  or  a 
note  of  a  national  bank.  It  is  unnecessary 
to  do  so.  The  bank-notes  issued  by  national 
banks  and  federal  reserve  banks  are  so  thor- 
oughly protected  by  the  Government  that 
they  are  certain  to  be  paid. 


CHAPTER   X 
STOCKS  AND   BONDS 

WHEN  a  man  is  in  business  for  himself, 
all  the  money  that  he  makes  is  his  own.  Of 
course,  if  the  business  happens  to  prove  un- 
profitable, he  has  to  suffer  the  entire  loss. 
In  spite  of  the  fact  that  every  one  would  like 
to  keep  for  himself  and  his  family  all  the 
profits  of  a  business,  there  are  reasons  why 
this  is  not  done  in  many  cases.  A  merchant 
may  see  an  opportunity  to  enlarge  his  busi- 
ness, but  he  may  not  have  enough  money  to 
do  so.  He  may  find  that  the  business  has 
grown  so  greatly  that  he  is  unable  to  attend 
to  it  personally.  He  may  feel  that  he  needs 
some  one  who  is  just  as  much  interested  in 
the  business  as  himself,  with  whom  he  can 
discuss  matters  and  make  plans.  For  any 
one  of  these  reasons,  or  for  all  of  them,  a 
merchant  may  decide  to  share  his  business 
with  a  partner.  This  may  bring  about  all  the 
advantages  that  he  expected;  and  a  good 
70 


STOCKS  AND  BONDS 

partner  will  sometimes  make  all  the  differ- 
ence between  success  and  failure.  If,  how- 
ever, the  partner  should  prove  incompetent 
or  dishonest,  there  is  one  important  point  to 
be  considered.  If  a  business  fails,  and  more 
money  is  owed  by  the  business  than  it  can 
pay,  then  any  person  to  whom  the  business 
owes  money  can  collect  it  all  from  any  one 
of  the  partners  that  he  chooses  to  demand  it 
from,  if  that  one  partner  has  enough  prop- 
erty of  his  own  to  pay  the  debt.  If  one  part- 
ner runs  away  with  the  property  of  the  busi- 
ness, the  other  partner,  or  partners,  must 
pay  all  the  debts  of  the  business.  If  one 
partner  by  foolish  methods  causes  the  firm 
to  fail,  then,  if  the  partner  who  caused  the 
failure  has  no  property  except  what  he  in- 
vested in  the  business,  the  other  partner 
must  pay  all  the  debts  —  if  he  can. 

Long  ago,  in  Great  Britain  during  the 
eighteenth  century,  there  was  a  widespread 
interest  in  foreign  commerce.  Certain  busi- 
ness men  thought  that  it  would  be  a  very 
profitable  thing  for  them  if  they  could  secure 
a  great  deal  of  money  from  persons  who 
71 


MONEY 

should  be  partners  only  so  far  as  to  invest 
money,  but  who  should  not  take  part  in 
managing  the  business.  There  were  formed 
what  were  known  as  joint-stock  companies. 
Suppose  that  it  was  planned  to  raise  a  sum 
of  money  equal  to  $  100,000  —  to  carry  on 
foreign  trading.  The  business  was  divided, 
on  paper,  into  1000  parts,  and  any  person 
who  paid  $100  was  given  a  paper  which 
stated  that  he  was  the  owner  of  one  of  these 
parts.  When  all  the  1000  parts  had  been 
sold,  the  sum  of  $  100,000  had  been  obtained 
in  cash. 

But  plans  for  making  money  are  not  al- 
ways successful.  One  of  the  greatest  of  these 
joint-stock  companies  turned  out  to  be  a 
very  great  failure.  All  of  its  money,  an  im- 
mense sum,  was  lost,  and  the  company  still 
owed  very  great  debts.  Under  the  law  at  that 
time  the  joint-stock  company  was  simply  a 
great  partnership  concern  with  a  very  large 
number  of  partners.  And  as  every  one  who 
owned  a  share  in  the  company  was  a  partner, 
the  owner  of  only  one  share  of  stock,  there- 
fore, could  be  called  upon  to  pay  all  of  the 
72  • 


STOCKS  AND  BONDS 

debts  of  the  company,  and  he  could  be  forced 
to  do  so  if  he  had  enough  money.  Many 
persons  of  great  wealth  were  ruined  at  that 
time  simply  because  they  owned  a  little 
stock.  A  method  was  discovered  by  which 
such  a  risk  was  avoided.  Limited  liability 
companies  were  formed.  The  stock  was  di- 
vided and  sold  in  the  same  way  as  before, 
but  the  buyer  of  the  stock  could  not  be  held 
liable  to  pay  all  the  debts  of  the  company. 
The  worst  that  could  happen  was  for  him 
to  lose  the  money  that  he  had  paid  for  his 
shares  of  stock.  Under  this  arrangement,  if 
a  man  owns  one  tenth  of  the  stock  of  a  com- 
pany, he  is  entitled  to  one  tenth  of  the  profits 
of  the  company.  If  there  are  nothing  but 
losses,  year  after  year,  his  share  of  the  losses 
is  paid  out  of  the  money  that  he  put  into  the 
business.  Of  course,  in  that  case,  his  share 
in  the  business  becomes  less  and  less  valu- 
able. But  at  all  events  he  cannot  lose  more 
than  he  put  in. 

These  companies  are  called,  in  this  coun- 
try, corporations.  Thousands  of  people  who 
had  money  would  never  have  dared  to  be- 
73 


MONEY 

come  partners  in  business  ventures  because 
they  knew  nothing  about  the  management 
of  such  lines  of  trade,  and  they  were  afraid 
that,  as  partners,  they  might  lose  every- 
thing that  they  possessed.  These  same  peo- 
ple, however,  were  glad  to  invest  a  small 
part  of  their  money  in  enterprises  which 
they  thought  would  be  successful,  when  all 
they  had  to  do  was  to  pay  a  small  sum  for 
shares  in  a  corporation.  In  this  way  great 
business  enterprises  were  made  possible  and 
the  risk  was  shared  by  thousands  of  persons 
in  exact  proportion  to  the  amount  each  one 
invested. 

There  is  one  point  of  great  importance, 
however,  that  many  persons  do  not  under- 
stand. Suppose  that  the  sum  of  $100,000  is 
raised  by  selling  1000  shares  of  stock  for 
$100  per  share.  A  person  who  pays  $1000 
for  this  stock  receives  a  piece  of  engraved 
paper  called  a  certificate  of  stock,  which 
states  that  the  holder  of  that  certificate  is  the 
owner  of  10  shares  of  such  and  such  a  com- 
pany. But  it  has  been  customary  for  many 
companies  to  have  the  figures  "$iooo"en- 
74 


STOCKS  AND  BONDS 

graved  or  stamped  in  a  corner  of  the  cer- 
tificate. Also  words  that  indicate  a  money 
value  form  part  of  such  certificate.  It  may 
read,  for  example,  "  The  holder  of  this  cer- 
tificate is  the  owner  of  10  shares  of  the  par 
value  of  $100  per  share."  Such  words  and 
figures  may  be  misleading.  The  certificate 
may  be  worth  $1000,  or  more  or  less,  at  any 
future  time.  It  is  worth  in  cash,  at  any  time, 
just  whatever  sum  in  cash  some  one  can  be 
induced  to  pay  for  it.  In  a  company  whose 
entire  stock  is  1000  shares,  the  owner  of  100 
shares  is  the  owner  of  a  one-tenth  interest 
in  the  company;  and  nothing  else!  If  the 
company  makes  a  great  deal  of  money,  his 
stock  may  become  worth  much  more  than 
$100  a  share.  If  the  company  loses  money, 
his  stock  may  become  worth  nothing  at  all. 
In  any  case,  a  share  of  stock  means  the 
ownership  of  a  certain  definite  proportion 
of  a  business  (corporation) ;  and  nothing 
more. 

Bonds  are  entirely  different  in  principle 
from  stock.    They  may  be  considered    as 
notes  of  a  corporation  ;  that  is,  written  prom- 
75 


MONEY 

ises  of  a  corporation  to  pay  money  at  a 
future  stated  time.  They  are  always  secured 
by  the  deposit,  in  the  hands  of  a  trustee,  of 
some  property  owned  by  the  corporation. 
If  the  bonds  are  not  paid  at  the  promised 
time,  it  then  becomes  the  duty  of  the  trus- 
tee to  sell  the  property  and  use  the  money 
thus  obtained  to  pay  the  owners  of  the  bonds. 
Bonds  are  usually  promises  to  pay  money 
at  the  end  of  several  years.  Bonds  of  rail- 
road corporations  often  are  to  be  paid  at  the 
end  of  fifty  years.  An  advantage  of  a  bond 
as  an  investment  is  that  if  a  person  buys 
one,  he  will  not  have  his  money  paid  back 
to  him  very  soon,  and  consequently  will  not 
be  obliged  to  look  around  in  a  short  while 
to  find  a  new  investment. 

Money  paid  for  bonds  is  really  money 
loaned  to  the  corporation  by  the  persons 
who  buy  these  bonds.  Payment  for  inter- 
est, therefore,  must  be  made  by  the  corpo- 
ration to  the  bondholders.  Payment  for  in- 
terest on  bonds  is  usually  made  every  six 
months.  Some  corporations  make  payments 
for  interest  by  checks.  This  is  done  where 


STOCKS  AND  BONDS 

the  owner  of  the  bond  has  his  name  written 
on  the  bond  itself.  These  are  called  regis- 
tered bonds.  Usually,  however,  bonds  of 
$1000  each  have  sheets  of  coupons  attached 
to  them,  one  coupon  for  every  six  months 
from  the  day  the  bond  was  issued  until  the 
day  when  it  is  payable.  One  coupon  is  cut 
off  by  the  owner  every  six  months  and  taken 
to  a  place  named  by  the  corporation.  There 
it  is  exchanged  for  the  value  of  six  months' 
interest  on  the  bond,  which  is  paid  in  cash. 


CHAPTER  XI 
SPECULATION 

A  MERCHANT  buys  goods,  intending  and 
expecting  to  sell  the  same  goods  at  a  higher 
price  than  he  paid  for  them.  He  buys  the 
goods  as  cheaply  as  he  can.  If  he  has  enough 
money  to  pay  cash,  he  can  buy  them  cheaper 
than  if  he  promised  to  pay  for  them  after 
three  months.  If  he  buys  a  large  quantity, 
he  can  get  them  cheaper  than  if  he  bought 
only  a  small  amount.  Therefore,  a  merchant 
who  is  able  to  pay  cash  for  the  goods  he 
buys,  and  who  has  enough  cash  to  buy  at 
one  time  as  many  goods  as  he  thinks  he  can 
sell  in  a  reasonable  time,  is  likely  to  get  his 
goods  as  cheaply  as  they  can  be  purchased 
by  anybody.  When  he  sells  the  goods,  he 
will  generally  charge  as  much  for  them  as 
he  can.  But  it  will  not  do  to  charge  too 
much.  He  is  not  the  only  merchant,  and  if 
his  prices  are  too  high,  customers  will  go 
to  other  merchants  where  they  can  buy 

78 


SPECULATION 

cheaper.  It  can  be  seen,  therefore,  even 
after  this  short  explanation,  that  it  requires 
something  more  than  money  to  be  a  suc- 
cessful merchant.  Good  judgment  and  usu- 
ally experience  are  necessary.  When  a  man 
starts  in  business  for  himself,  he  ought  gen- 
erally to  have  enough  money  to  buy  for 
cash  a  sufficient  stock  of  goods.  He  should 
also  have  had  some  training  in  the  business 
that  he  is  undertaking.  Perhaps  he  has  been 
for  many  years  employed  at  a  salary  by 
some  other  merchant  in  the  same  line  of 
business.  During  that  time  he  may  have 
saved  enough  money  to  start,  in  a  small 
way,  for  himself.  Finally,  he  should  feel 
that  he  has  good  enough  judgment  to  know 
when  to  buy  goods,  to  know  how  much  to 
buy  at  a  time,  and  to  know  how  to  sell 
them  successfully.  If  he  makes  a  beginning 
under  these  conditions,  he  is  doing  what  is 
called  regular  or  legitimate  business.  There 
is  another  kind  of  business  that  is  called 
speculation.  This  name  is  given  to  a  business 
transaction  when  a  merchant,  or  any  one 
else,  buys  something  and  runs  a  consider- 
79 


MONEY 

able  risk  that  he  may  not  be  able  to  sell  it  at 
a  higher  price.  Of  course,  when  he  buys  the 
article,  he  expects  to  sell  it  at  a  profit.  Very 
likely  he  may  succeed  in  doing  so.  In  that 
case  he  has  made  a  successful  speculation. 
Let  us  suppose  that  a  merchant  has  been 
in  the  flour  business  for  many  years,  buy- 
ing about  the  same  amount  every  year,  and 
selling  it  to  his  regular  customers  at  a  profit. 
He  reads  the  papers  and  talks  to  other  mer- 
chants and  forms  the  opinion  that  a  great 
war  is  likely  to  begin  abroad.  If  the  war 
occurs,  it  is  practically  certain  that  the  price 
of  flour  will  be  much  higher.  He  trusts  his 
own  judgment  and  buys  a  large  quantity  of 
flour  —  much  larger  than  he  would  expect 
to  sell  to  his  regular  customers  in  case  there 
should  be  no  war.  If  his  judgment  is  right, 
the  price  of  flour  goes  up  and  he  sells  his 
purchase  at  a  large  profit.  But  if  there  should 
be  no  war,  he  would  find  himself  with  a 
large  stock  on  hand  that  he  could  not  sell 
at  once,  except  at  a  loss.  If  he  keeps  it  until 
in  time  his  customers  need  it  and  buy  it,  he 
has  to  pay  fire  insurance,  perhaps  storage 
80 


SPECULATION 

charges,  and  runs  the  risk  of  some  of  it  be- 
coming bad  in  quality.  Take  another  case  : 
It  may  be  that  the  same  merchant  has  stud- 
ied the  reports  from  foreign  countries  and 
his  judgment  tells  him  that  the  crops  of 
grain  in  those  countries  are  likely  to  be 
small.  If  that  turns  out  to  be  true,  the 
price  of  flour  will  go  higher.  He  decides, 
therefore,  to  buy  a  large  quantity,  believing 
that  his  judgment  is  correct.  All  business  re- 
quires good  judgment  and  sometimes  it  is 
difficult  to  decide  where  legitimate  business 
ends  and  speculation  begins.  The  greater 
the  risk  of  loss  as  a  general  rule,  the  more 
likely  is  a  transaction  to  be  a  speculation. 
Sometimes  the  chance  of  loss  is  so  great  that 
speculation  is  too  mild  a  word  to  use,  and 
the  transaction  should  be  called  gambling. 

The  business  of  buying  stocks  is  perfectly 
legitimate.  Dealers  in  stocks  and  bonds  are 
as  respectable  as  any  other  merchants.  As 
this  business  requires  a  great  deal  of  money, 
some  people  are  inclined  to  look  upon 
dealers  in  stocks  and  bonds  as  if  they  were 
carrying  on  a  business  of  a  particularly 
81 


MONEY 

high  order  of  excellence.  For  persons  who 
have  ready  money,  it  is  very  easy  to  buy 
stocks,  because  the  article  that  is  being  pur- 
chased is  represented  by  a  piece  of  engraved 
paper  bearing  the  signature  of  certain  persons. 
As  it  is  easy  to  buy  stocks,  many  persons 
who  have  cash  are  tempted  to  buy  them 
hoping  to  sell  them  soon  at  a  higher  price. 
This  is  speculation  always,  and  often  gam- 
bling. A  regular  dealer  in  stocks  and  bonds 
has  been  trained  to  his  business.  He  knows 
when  a  stock  is  really  cheap  and  a  good 
purchase.  His  regular  customers  are  per- 
sons who  have  saved  money  and  buy  stock 
to  keep  and  not  to  sell  at  a  profit.  They 
want  stock  in  order  to  get  payments  for  in- 
terest on  their  money. 

Let  us  consider,  however,  the  case  of  a 
grain  merchant,  for  example,  who  has  made 
a  profit  in  his  regular  business  and  has  a  few 
thousand  dollars  in  cash.  He  thinks  his 
judgment  of  stocks  is  worth  trusting,  and 
decides  to  buy  stocks.  He  expects,  for  some 
reason  or  other,  that  the  price  will  advance 
and  that  he  will  be  able  to  sell  at  a  profit. 
82 


SPECULATION 

Well,  possibly  his  judgment  (or  it  may  be 
only  a  guess)  turns  out  to  be  correct.  He 
sells  the  stocks  and  makes  money.  The 
usual  result  is  that  he  is  convinced  that  he 
is  a  good  speculator.  He  buys  stocks  again. 
He  may  succeed  again ;  but  one  thing  is 
perfectly  certain  :  His  mind  is  drawn  away 
from  his  own  business.  He  is  giving  his 
thoughts  to  a  business  in  which  he  has  no 
training  and  neglecting  the  business  which 
he  knows.  To  use  a  familiar  expression,  he 
is  "playing  another  man's  game."  In  this 
age  the  most  successful  men  are  those  who 
specialize  in  one  thing.  They  spend  their 
time  and  use  their  brains  in  doing  something 
about  which  they  know  a  great  deal.  Of 
course  they  are  more  likely  to  succeed  than 
if  they  worked  at  something  of  which  they 
knew  very  little.  This  is  particularly  the 
case  in  buying  and  selling  stocks.  A  man 
who  is  not  trained  in  this  business  has  for 
competitors  men  of  keen  intellect  and  im- 
mense wealth,  whose  training  is  just  as  com- 
plete as  his  own  is  deficient.  It  is  reasonable 
to  expect  that  in  such  a  competition  the  un- 

83 


MONEY 

trained  man  will  be  the  loser.  And  this,  as 
a  matter  of  fact,  is  almost  invariably  the 
case.  An  untrained  man  is  practically  either 
guessing  or  trusting  to  his  luck.  In  the  first 
case  he  is  just  a  little  more  of  a  specula- 
tor; in  the  second  case  he  is  just  a  little 
more  of  a  gambler.  Whether  gambling  is 
right  or  wrong  it  is  not  the  object  of  this 
book  to  discuss.  It  is  sufficient  to  prove 
that  it  is  stupid. 

A  business  man  may  neglect  his  regular 
business  to  gamble  —  or  speculate  —  in 
stocks.  He  cannot  possibly  deal  in  stocks 
without  neglecting  his  other  business  to 
some  extent.  A  clerk  may  waste  his  spare 
time  and  risk  all  his  savings  in  playing 
some  gambling  game  in  which  he  either 
thinks  he  is  skillful  or  in  which  he  hopes  to 
be  lucky.  A  schoolboy  may  waste  his  spare 
time  and  risk  his  pennies  in  playing  craps. 
There  is  a  similarity  —  a  great  similarity  — 
between  these  three  individuals.  They  are 
all  exceedingly  foolish. 

A  friend  of  the  writer's,  a  man  who  has 


SPECULATION 

achieved  reputation  in  his  chosen  line  of 
work,  has  given  the  following  definition  of 
the  difference  between  business  and  specu- 
lation :  — 

In  business  enterprises  a  man  forms  a 
partnership  between  his  capital,  his  judg- 
ment, and  his  financial  ability.  The  finan- 
cial outcome  is  governed  largely  by  his 
ability;  whereas, — 

In  speculation  a  man  invests  his  money 
according  to  his  judgment,  but  the  financial 
outcome  is  determined  by  circumstances 
which  are  not  affected  by  his  business 
ability. 


CHAPTER  XII 
EXCHANGE 

IF  a  merchant  in  one  country  transacts 
business  with  a  merchant  in  a  foreign  coun- 
try, buying  goods  of  one  kind  from  him 
and  selling  him  goods  of  another  kind,  the 
time  will  come  when  one  merchant  will  owe 
the  other  a  sum  of  money  which  he  will  be 
asked  to  pay.  One  way  in  which  he  can 
pay  the  debt  is  to  send  the  amount  that  he 
owes  in  coin  across  the  ocean.  In  this  case 
it  will  be  necessary  for  him  to  pay  the 
steamship  company  that  carries  the  coin  a, 
sum  for  what  is  called  freight.  He  must 
also  pay  for  insurance  on  the  coin  in  case  it 
is  lost  at  sea.  In  spite  of  these  expenses, 
this  would  be  the  only  possible  way  of 
making  the  payment,  if  only  two  merchants 
in  the  two  countries  —  one  in  each  country, 
—  were  engaged  in  foreign  trade.  As  a 
matter  of  fact,  however,  in  all  important 
countries  there  are  many  merchants  engaged 
86 


EXCHANGE 

in  foreign  trade.  Such  being  the  case,  there 
is  a  method  of  settling  almost  all  such  debts 
without  the  need  of  sending  abroad  the 
actual  coin. 

Let  us  suppose  that,  out  of  the  many 
merchants  doing  a  foreign  business,  we  se- 
lect four,  two  in  each  country.  In  New  York 
the  two  merchants  are  Williams  and  Clark. 
In  London  they  are  Smith  and  Jones.  Let 
us  suppose  that,  after  a  year  of  trading, 
Williams  of  New  York  owes  $1000  to 
Smith  of  London,  and  Jones  of  London 
owes  #500  to  Clark  of  New  York.  Wil- 
liams and  Clark  are  friends.  They  discuss 
their  foreign  business  together,  and  make 
an  arrangement  on  the  following  terms : 
Clark  writes  an  order  (draws  a  draft)  direct- 
ing Jones  of  London  to  pay  1500  to  any 
one  whom  Williams  may  name.  This  draft 
is  sold  by  Clark  to  Williams  for  $500. 
When  this  has  been  done,  Clark  no  longer 
has  any  money  owed  to  him  in  London. 
He  has  sold  the  debt  to  Williams,  who  has 
paid  him  the  money,  and  has  undertaken 
to  collect  the  debt  himself.  Williams  then 


MONEY 

writes  an  endorsement  on  the  back  of  the 
draft,  directing  Jones  to  pay  the  money  to 
Smith  of  London.  Williams  now  sends  the 
draft  to  Smith  in  part  payment  of  the  $1000 
that  he  owes,  and  Smith  collects  the  money 
from  Jones.  This  leaves  only  $500  for 
Williams  to  send  in  coin  to  Smith  in  settle- 
ment of  what  he  owes.  Moreover,  if  Wil- 
liams can  find  another  man  in  New  York 
who  has  money  owed  to  him  by  a  London 
merchant,  he  may  be  able  to  buy  an  order 
on  London  for  $500  more.  Then,  when 
he  has  sent  both  orders  to  Smith,  the  entire 
debt  of  $1000  will  have  been  paid  without 
the  necessity  of  sending  any  coin  across  the 
Atlantic. 

It  is  on  this  principle  that  dealers  in  ex- 
change transact  their  business.  When  a  mer- 
chant in  New  York  wishes  to  collect  a  debt 
owed  to  him  by  a  merchant  in  London,  he 
draws  a  draft  on  the  London  merchant  and 
sells  it  for  cash  to  a  dealer  in  exchange. 
The  dealer  sends  the  draft  to  a  dealer  in 
London  who  collects  the  money  and  owes 
it  to  the  New  York  dealer.  When  some 
88 


EXCHANGE 

other  New  York  merchant  owes  money  in 
London,  and  wishes  to  pay  the  debt,  he 
buys  from  the  New  York  dealer  in  ex- 
change a  draft  on  the  London  dealer.  This 
he  sends  to  the  London  merchant  in  settle- 
ment of  the  debt,  and  the  London  mer- 
chant collects  the  money  from  the  London 
dealer.  Transactions  of  this  kind  continue 
until  dealers  in  one  country  owe  so  much 
money  to  dealers  in  the  other  country  that 
it  becomes  necessary  to  pay  the  debt  by 
sending  coin  across  the  ocean  in  spite  of 
the  expense  of  doing  so. 

Drafts  on  foreign  countries  are  called 
bills  of  exchange.  Like  everything  else  that 
is  bought  and  sold,  bills  of  exchange  are  the 
merchandise  of  those  who  buy  and  sell 
them.  And  like  every  other  merchandise, 
if  many  merchants  wish  to  sell  and  very 
few  wish  to  buy,  the  price  will  go  down. 
If  many  wish  to  buy  and  few  wish  to  sell, 
the  price  will  go  up. 

If  coin  is  sent  to  New  York  from  Lon- 
don and  it  is  intended  to  be  kept  in  Amer- 
ica and  not  to  be  shipped  back  again,  it  is 
89 


MONEY 

necessary  to  melt  the  foreign  coin  and  have 
it  made  into  United  States  coin.  The  gold 
in  a  British  sovereign  is  worth  14.8665  in 
United  States  money  at  the  "Mint/'  as  the 
place  is  named  where  the  United  States 
Government  coins  money.  If  it  were  not 
for  the  cost  of  sending  coin  across  the 
ocean,  no  New  York  dealer  in  exchange, 
when  buying  a  draft  on  London,  would  pay 
more  than  $4.8665  for  every  sovereign  (or 
pound  sterling,  which  is  another  name  for 
the  same  value  in  British  money).  On  ac- 
count of  the  expense  of  shipping  coin,  the 
price  of  bills  of  exchange  often  goes  higher. 
When  the  demand  for  drafts  on  London  is 
so  much  greater  than  the  supply  that  the 
price  goes  up  to  $4.90  per  sovereign  or 
even  a  little  less,  it  is  more  profitable  for  a 
dealer  to  pay  his  debt  abroad  by  sending 
coin  than  by  purchasing  a  draft.  On  the 
other  hand,  when  a  dealer  has  money  owed 
to  him  in  London,  and  he  can  sell  a  draft  on 
London  for  only  $4.83  per  pound  sterling 
or  even  a  little  more,  he  will  refuse  to 
accept  such  a  low  price.  He  will  arrange 
90 


EXCHANGE 

to  have  the  coin  sent  to  him  from  London, 
even  if  he  has  to  bear  the  expense  of 
doing  so. 

In  dealings  between  the  two  countries,  it 
is  only  the  value  of  the  metal  in  the  coin  that 
is  considered.  For  this  reason,  instead  of 
coined  money  there  are  sometimes  sent  across 
the  ocean  bars  of  gold  of  a  certain  weight  and 
fineness. 

In  the  financial  sections  of  the  daily  news- 
papers we  read  constantly  about  bank  clear- 
ings and  the  clearing  house.  The  use  of  bills 
of  exchange  prevents  the  necessity  of  con- 
tinual shipments  of  gold  across  the  ocean. 
The  clearing  house,  which  is  explained  in  the 
following  paragraphs,  saves  an  enormous 
amount  of  time,  trouble,  risk,  and  expense 
in  the  dealings  of  different  banks  with  each 
other.  The  work  of  the  clearing  house  is 
similar  in  principle  to  the  use  of  bills  of  ex- 
change, though  the  details  of  its  operations 
are  different. 

Banks,  as  a  rule,  do  not  make  payments 
to  their  depositors  for  interest  on  money 
which  depositors  are  allowed  to  draw  out  by 


MONEY 

means  of  checks.  Trust  companies,  while 
they  allow  their  depositors  to  draw  checks, 
pay  a  small  amount  for  interest  on  de- 
posits. 

In  spite  of  getting  no  payment,  or  only  a 
small  payment  for  interest,  people  deposit 
their  money  in  these  banks  and  trust  com- 
panies for  several  reasons.  It  is  a  convenience 
to  be  able  to  draw  checks.  When  banks  have 
only  a  limited  amount  of  money  to  loan, 
they  usually  give  the  preference  to  their  own 
depositors.  Moreover,  depositors  are  saved 
the  trouble  of  collecting  cash  in  exchange  for 
the  checks  which  they  themselves  receive. 
A  merchant  may  receive  a  great  many  checks 
in  the  course  of  one  day,  drawn  on  many 
different  banks  and  trust  companies.  He 
deposits  them  all  in  his  own  bank,  and  his 
own  bank  agrees  to  collect  the  money  from 
all  the  banks  on  which  the  checks  are  drawn. 
In  former  days,  every  bank  was  obliged  to 
send  messengers  to  nearly  every  other  bank 
in  the  same  city  every  morning.  These  mes- 
sengers took  with  them  all  the  checks  on  the 
other  banks  in  the  same  city  which  had  been 
92 


EXCHANGE 

deposited  the  day  before  in  their  own  banks. 
They  delivered  these  checks  to  the  other 
banks,  and  brought  back  cash  in  exchange 
for  them.  This  method  of  collecting  the 
money  took  up  a  great  deal  of  time.  There 
was  also  a  considerable  risk  involved.  Mes- 
sengers were  sometimes  robbed  of  the  money, 
and  they  were  always  obliged  to  carry  loaded 
pistols  to  defend  themselves  in  case  they 
were  attacked.  To  avoid  this  risk  and  loss 
of  time,  an  arrangement  was  made  by  which 
the  business  could  be  transacted  every  day 
in  one  place  by  associations  of  banks  of 
the  same  city.  These  associations  are  called 
clearing  houses. 

In  order  to  give  a  better  conception  of 
the  work  done  by  the  modern  clearing 
house,  a  brief  description  of  the  operations 
of  the  New  York  Clearing  House  is  given. 
The  New  York  Clearing  House  is  an  as- 
sociation consisting  of  forty-seven  banks, 
fifteen  trust  companies,  and  the  Assistant 
Treasurer  of  the  United  States  at  New  York 
—  sixty-three  members  in  all.  The  meeting 
place  is  at  No.  77  Cedar  Street.  The  Asso- 
93 


MONEY 

elation  has  a  manager,  an  assistant  manager, 
and  a  force  of  clerks. 

Shortly  before  10  A.M.  every  business  day, 
every  one  of  the  sixty-three  members  of  the 
Clearing  House  sends  to  this  place  two  or 
more  clerks  and  at  least  one  messenger. 
From  the  time  of  arrival  until  they  leave, 
about  one  hour  later,  these  men  cease  to  be 
employees  of  their  own  banks  and  become 
employees  of  the  Clearing  House.  On  the 
main  floor  of  the  building,  one  flight  above 
the  street,  five  rows  of  desks  are  placed 
which  are  divided  into  sixty-three  compart- 
ments. Around  these  rows  of  desks  there  is 
sufficient  space  for  a  line  of  clerks  to  march 
in  single  file.  As  soon  as  he  enters  the  Clear- 
ing House  building,  one  of  the  clerks  from 
each  bank,  called  the  settling  clerky  lays  a 
slip  of  paper  on  the  desk  on  the  main  floor 
just  inside  the  entrance.  On  this  paper  is 
written  the  total  amount  in  money  of  all  the 
checks  which  his  bank  has  sent  that  day  to 
the  Clearing  House.  These  are  the  checks 
which  have  been  deposited  in  his  own  bank 
and  which  are  drawn  on  other  banks  belong- 
94 


EXCHANGE 

ing  to  the  Clearing  House.  When  the  sixty- 
three  slips  are  handed  in,  they  are  taken  to 
the  manager  of  the  Clearing  House  or  to 
some  one  who  represents  him.  The  settling 
clerk  of  each  bank  then  takes  the  place  be- 
longing to  him  behind  one  of  the  five  rows 
of  desks.  At  the  other  side  of  the  desk,  di- 
rectly in  front  of  the  settling  clerk,  the  de- 
livery clerk  from  the  same  bank  takes  his 
stand.  He  carries  a  satchel  in  which  are 
packages  of  checks,  each  package  containing 
checks  drawn  on  one  of  the  other  banks.  He 
also  carries  a  slip  of  paper  on  which  are 
printed  the  names  of  all  the  Clearing  House 
banks,  and  the  number  which  each  bank  has 
been  given.  These  numbers  at  the  present 
time  run  from  No.  i  to  No.  120,  the  same 
number  being  kept  by  a  bank  as  long  as  it 
remains  a  member  of  the  Clearing  House. 
Fifty-seven  numbers  are  now  no  longer  used, 
as  the  banks  that  once  held  them  are  either  no 
longer  in  existence,  or  for  some  other  reason 
are  not  now  members.  On  this  slip,  along- 
side the  name  of  each  bank,  has  been  written 
the  total  amount  in  money  of  the  checks  on 
95 


MONEY 

this  bank  which  have  been  brought  on  that 
day.  The  same  clerk  also  carries  small  slips, 
one  for  each  bank,  on  which  the  same  infor- 
mation is  written  separately  for  each  bank. 

At  10  A.M.  the  assistant  manager  strikes 
a  gong.  If  the  clerks  of  any  bank  are  not 
present  and  in  their  places  when  the  gong  is 
sounded,  that  bank  is  obliged  to  pay  a  fine. 
As  soon  as  the  gong  is  struck,  the  lines  of 
delivery  clerks  begin  to  move.  Every  de- 
livery clerk  stops  in  succession  at  the  desk 
of  every  settling  clerk.  He  waits  at  each  desk 
just  long  enough  to  do  three  things :  He 
delivers  a  package  of  checks.  He  presents 
the  long  slip  which  he  carries,  on  which  the 
settling  clerk  signs  his  name  on  the  same 
line  where  his  bank's  number  and  name  are 
printed  and  where  the  amount  of  the  checks, 
in  the  package  just  delivered,  is  written. 
This  signature  serves  as  a  receipt  for  the 
checks  on  his  bank.  The  delivery  clerk 
takes  back  the  long  slip,  hands  in  one  of  the 
sixty-two  small  slips,  and  goes  on  to  the  next 
desk. 

As  soon  as  he  has  signed  the  receipt  for  the 


EXCHANGE 

package  of  checks,  the  settling  clerk  enters 
the  total  amount  of  the  checks  in  this  pack- 
age upon  a  long  slip  of  paper,  on  a  line  where 
is  printed  the  name  of  the  bank  which  has 
delivered  them.  He  then  hands  the  package 
to  his  own  bank  messenger  who  is  standing 
behind  him,  and  who  places  it  in  a  satchel. 
The  amounts  written  on  the  small  slips  are 
compared  with  the  amounts  written  on  the 
packages  and  the  slips  are  then  sent  to  the 
manager. 

While  this  work  is  being  done  on  the 
main  floor,  the  Clearing  House  clerks  are 
entering  on  a  slip  of  paper  the  amounts  stated 
on  the  papers  which  were  handed  in  by  the 
settling  clerks  when  they  entered  the  Clear- 
ing House.  The  total  of  these  sixty-three 
items  represents  the  total  amount  of  the 
checks  brought  to  the  Clearing  House  that 
day.  The  amounts  written  on  the  small  slips 
sent  in  by  each  bank  are  then  added  to- 
gether and  show  the  amount  of  the  checks 
delivered  to  that  bank  by  all  the  other  banks. 
These  sixty-three  items  are  added  together 
and  the  total  must  agree  with  the  first  fig- 
97 


MONEY 

ures,  being  also  the  amount  of  all  the  checks 
brought  to  the  Clearing  House. 

When  the  delivery  clerks  have  handed  in 
all  the  packages  of  checks,  the  settling  clerks 
proceed  to  add  up  the  figures  on  their  slips. 
If  the  total  amount  of  the  checks  delivered 
to  a  settling  clerk  is  greater  than  the  total 
amount  of  the  checks  on  other  banks  which 
he  brought  to  the  Clearing  House,  the  dif- 
ference shows  the  amount  which  his  bank 
must  pay  in  cash.  If  the  amount  of  the 
checks  brought  by  him  is  greater  than  the 
amount  of  checks  delivered  by  other  banks, 
the  difference  shows  the  amount  which  his 
bank  is  to  receive  in  cash.  He  enters  both 
totals  on  his  slip,  performs  the  subtraction, 
shows  the  balance  due  to  or  from  his  bank, 
and  sends  his  slip  to  the  manager.  The  slips 
must  be  in  the  hands  of  the  manager  at  1 1 
A.M.  If  any  settling  clerk  is  fifteen  minutes 
later,  his  bank  is  fined  three  dollars.  For  a 
further  delay  of  fifteen  minutes  the  fine  is 
three  dollars  more.  A  third  delay  of  fifteen 
minutes  costs  his  bank  two  dollars  more. 
The  total  amounts  due  to  the  banks  which 
98 


EXCHANGE 

bring  more  in  checks  than  they  receive  must 
equal  the  total  amounts  due  by  the  banks 
which  receive  more  in  checks  than  they  bring. 
If  any  mistake  is  made  in  the  figures  sent  to 
the  manager,  the  clerks  must  discover  the 
mistake  before  they  are  allowed  to  leave.  The 
bank  whose  clerk  has  made  the  error  is  fined 
for  the  time  lost.  Every  bank  which  has  a 
balance  against  it  must  send  to  the  Clearing 
House  the  amount  due,  in  cash,  before  2 
P.M.  The  money  is  distributed  by  the  Clear- 
ing House  to  the  banks  to  which  it  is  owed. 
An  arrangement  is  sometimes  made  by 
which  a  bank  belonging  to  the  Association 
is  permitted  to  "clear"  checks  for  a  bank 
which  is  not  a  member. 


CHAPTER  XIII 
MONEY  FOR   WOMEN 

ONE  hundred  years  ago,  in  the  United 
States  of  America,  a  man  who  occupied  his 
time  in  trying  to  make  money  might  have 
had  a  business  or  profession  or  trade  of  his 
own,  in  which  case  all  the  money  that  he 
made  belonged  to  him.  He  might  have  had 
a  partner,  in  which  case  the  money  that  was 
made  was  shared  between  them.  He  might 
have  been  employed  by  some  one  else,  in 
which  case  he  received  the  salary  or  wages  that 
had  been  agreed  upon  and  the  rest  of  the 
money  earned  by  him  belonged  to  his  em- 
ployer. Or  he  might  have  been  a  slave,  in 
which  case  all  the  money  that  he  earned  be- 
longed to  his  master.  Of  course  the  master 
gave  him  food  and  clothes  and  a  place  in 
which  to  sleep,  otherwise  he  would  have 
died  or  become  ill,  and  could  not  have  con- 
tinued to  earn  money  for  his  master.  At 
the  present  time,  the  fourth  and  last  of  the 
100 


MONEY  FOR  WOMEN 

methods  just  described  for  making  money 
is  no  longer  supposed  to  be  possible  in  this 
country.  Slavery  has  been  abolished  under 
the  law.  But  suppose  that  one  hundred  years 
ago,  a  man  who  owned  slaves  had  sent  for 
them  to  appear  before  him  and  had  informed 
them  that  they  were  no  longer  to  be  called 
"slaves"  but  were  to  go  by  the  name  of 
"millionaires."  It  is  not  probable  that  the 
new  title  would  have  given  much  satisfac- 
tion to  the  slaves  if  they  had  still  been  treated, 
in  every  respect,  in  exactly  the  same  manner 
as  before. 

Now,  let  us  suppose  that,  at  the  present 
time,  there  are  persons  who  spend  practi- 
cally all  of  their  time  in  work  for  others. 
They  are  told,  by  the  persons  for  whom  they 
work,  that  they  are  partners.  That  is  the 
title  given  to  them,  but  all  that  they  receive 
from  the  persons  for  whom  they  work  con- 
sists of  food  and  clothes  and  a  place  in  which 
to  sleep.  Of  course,  they  can  ask  for  money 
to  spend.  One  hundred  years  ago  a  slave 
could  have  asked  his  master  for  money  to 
spend  and  he  might  have  received  it.  But, 
101 


MONEY 

in  both  cases  the  person  who  was  asked  could 
decide  whether  or  not  the  money  was  to  be 
given.  Also  it  was  he  whose  judgment  would 
decide  what  kind  of  food  and  clothing  and 
shelter  was  to  be  provided  in  both  cases  — 
one  hundred  years  ago  and  also  to-day  in 
the  case  that  we  have  supposed.  Is  it  proba- 
ble that  the  title  of  partner  will  give  [great 
satisfaction  if  the  privileges  of  a  partner  are 
entirely  absent? 

At  the  present  time  a  few  women  have  a 
business  or  a  profession  of  their  own.  A 
greater  number,  but  still  comparatively  few, 
have  a  trade  of  their  own.  A  very  large 
number  are  employed  by  others  and  are  paid 
salaries  or  wages.  All  of  these  women  re- 
ceive money  which  has  been  earned  by  them 
and  which  they  can  spend  to  a  great  extent, 
as  they  may  think  fit.  Many  other  women 
get  married,  and  most  of  them  occupy  prac- 
tically all  of  their  time  in  working  for  others 
—  their  husbands  and  children.  They  are 
not  supposed  to  be  employed  by  their  hus- 
bands. If  they  were  paid  salaries  or  wages 
as  employees  by  their  husbands,  they  might 
102 


MONEY  FOR  WOMEN 

very  properly  consider  such  payment  as  an 
insult.  They  are  supposed  to  be  in  the  po- 
sition of  partners.  The  husband  goes  out  to 
work  by  which  he  earns  money,  whether  he 
owns  a  business  or  has  a  profession  or  a 
trade  or  whether  he  receives  a  salary  or 
wages.  The  wife  takes  care  of  the  home  and 
the  children  in  whatever  way  may  be  neces- 
sary, whether  she  does  all  the  work  or  is 
assisted  by  some  of  the  children  or  is  able 
to  employ  others  to  assist  her.  Each  of  the 
two  partners  has  a  certain  work  to  perform 
and  each  one  occupies  practically  all  of  the 
day  in  performing  it.  If  the  partnership  is 
to  be  real  and  not  one  only  in  name,  each 
partner  should  receive  the  proper  return  for 
the  work  performed. 

It  is  not  probable  that  many  men  treat 
their  wives  with  deliberate  unfairness.  Many 
men  who  receive  wages,  and  some  who  re- 
ceive salaries,  give  their  wives  the  entire 
amount  received  by  them.  Then  they  take 
back  again  a  sum  of  money  for  their  own 
personal  expenses,  and  the  rest  is  left  with 
their  wives  to  be  spent  for  the  needs  of  the 
103 


MONEY 

home.  Other  men,  when  they  are  paid  by 
their  employers,  spend  part  of  their  money 
in  having  a  "good  time"  with  their  friends. 
They  keep  part  of  what  is  left  for  their  per- 
sonal expenses,  and  they  give  the  remainder 
to  their  wives.  They  say  to  themselves:  "I 
earn  the  money,  and  I  have  a  right  to  spend 
it  as  I  please." 

Some  salaried  men  and  many  professional 
and  business  men  pay  all  the  household 
bills  and  give  their  wives  what  they  consider 
a  reasonable  sum  of  money  every  week  or 
every  month.  Often  this  sum  of  money  is  a 
large  one.  Others  pay  all  the  household 
bills  and  give  money  to  their  wives  when 
they  are  asked  for  it.  Sometimes  they  give 
whatever  they  are  asked  for  and  sometimes 
they  do  not. 

Not  one  of  the  methods  named,  by  which 
a  wife  comes  into  the  possession  of  money, 
is  either  proper  or  reasonable  as  they  have 
been  described.  In  every  case  the  method 
employed  has  been  adopted  according  to  the 
judgment  of  the  husband.  No  matter  if  he 
decides  to  hand  his  wife  absolutely  all  of  the 
104 


MONEY  FOR  WOMEN 

money  earned,  this  method  of  reaching  a  de- 
cision is  improper  and  unreasonable. 

In  business,  partnership  contracts  are  the 
result  of  an  agreement  between  the  partners. 
In  this  country,  and  in  the  present  age,  it  is 
not  the  custom  for  two  persons  who  are 
about  to  marry  to  enter  into  an  agreement 
relating  to  the  manner  in  which  their  future 
income  is  to  be  expended.  Whether  the  ab- 
sence of  such  a  custom  is  wise  or  right  we 
shall  not  now  discuss,  but  it  is  certainly  a 
fact.  If,  however,  marriage  is  to  be  a  part- 
nership in  reality  and  not  in  name  only,  an 
agreement  should  be  made  after  the  marriage, 
and,  if  necessary ,  the  terms  of  the  agreement 
should  be  changed  from  time  to  time,  ac- 
cording to  possible  changes  in  the  family  in- 
come, whether  it  be  increased  or  decreased. 
It  is  a  question  of  principle.  It  may  be  that 
the  wife  should  reasonably  expect  a  consider- 
able sum  of  money  every  month  to  be  ex- 
pended as  she  may  choose.  Or  it  may  be 
that  the  entire  income  is  only  sufficient  with 
rigid  economy  to  pay  the  necessary  house- 
hold bills,  and  that  all  the  ready  cash  that 
105 


MONEY 

is  left  should  properly  be  given  to  the  hus- 
band for  needed  personal  expenses.  In  either 
case,  or  in  any  other  case,  the  two  partners 
should  discuss  the  matter  carefully.  They 
should  come  to  a  conclusion  that  is  really 
an  agreement  between  them  and  not  the  cal- 
culated decision  of  an  employer  or  the  arbi- 
trary whim  of  a  master. 


CHAPTER  XIV 
TRAVEL 

PERSONS  who  are  living  where  they  are 
well  known,  and  who  have  good  reputations 
for  paying  their  debts,  can  obtain-  what  they 
desire  without  making  immediate  payment. 
When  they  travel  to  places  where  they  are 
unknown,  they  cannot  reasonably  expect 
such  trust.  The  very  word  "  travel,"  how- 
ever, suggests  the  idea  of  expense.  The  cost 
of  going  from  one  place  to  another  must  be 
paid  for,  and  the  cost  of  food  calls  for  an- 
other continual  outlay  of  money.  In  ad- 
dition to  these  items  of  necessity,  travelers 
usually  expect  to  pay  money  for  sight-seeing 
and  other  amusements,  and  for  the  purchase 
of  such  articles  as  may  appeal  to  their  fancy. 
Travelers,  therefore,  must  expect  to  make 
payments  of  cash  continuously,  from  the 
time  when  they  leave  home  until  they 
return. 

In  former  days  travelers  either  took  with 
them  on  their  journeys  enough  gold  and 
107 


MONEY 

silver  money  to  supply  all  their  needs,  or 
else  they  carried  with  them  a  smaller  supply 
of  gold  and  silver  money  together  with  bills 
of  exchange,  which  have  already  been  ex- 
plained. In  both  these  cases,  in  addition  to 
the  possibility  of  losing  the  money,  there 
is  the  risk  of  being  robbed.  For  many  years 
travelers  have  been  provided  with  safer  meth- 
ods of  obtaining  cash  in  exactly  the  required 
amounts  at  the  exact  time  when  such  amounts 
were  needed.  These  methods  are  the  use  of 
letters  of  credit  and  of  travelers*  checks. 

Letters  of  credit  and  travelers'  checks  are 
sold  by  well-known  banks  and  bankers  in 
the  large  cities  of  the  world.  The  way  in 
which  they  are  used  will  now  be  explained. 

Let  us  suppose  that  a  man  named  Thomas 
H.  Williams,  who  lives  in  New  York,  wishes 
to  travel  through  Europe.  He  thinks  that 
the  expenses  of  his  journey  will  be  $1500, 
or  a  little  less.  He  goes  to  some  well-known 
banking  firm  —  for  example,  Brown  Broth- 
ers &  Co.  —  and  buys  a  letter  of  credit 
on  London  for  £300.  The  rate  of  exchange 
on  London,  on  the  day  he  buys  the  letter 
108 


TRAVEL 

of  credit,  happens  to  be  $4.90,  and  he  there- 
fore pays  them  $1470.  He  receives  a  docu- 
ment which  reads  as  follows  :  — 

Brown  Brothers  &  Co. 

Circular  Letter  of  Credit.          New  York,  March  i,  1916. 

No.  B/R  30000. 

^      Gentlemen, 

^  We  beg  to  introduce  to  you  Miv  Thomas  H. 

§      Williams,  to  whom  you  will  please  furnish  such 

S3      funds  as  he  may  require  up  to  the  aggregate  amount 

5      °f  jC3°°  Stg.  —  Three  Hundred  pounds  sterling, 

2      — against  demand  drafts  on  Messrs.  Brown,  Ship- 

^      ley  &  Co.,  1 23  Pall  Mall,  London,  —  each  draft  to 

^      be  plainly  marked  as  drawn  under  Brown  Brothers 

Jj      &  Co.'s  Letter  of  Credit  No.  B/R  30000. 

.13  We  engage  that  such  drafts  shall  meet  with  due 

*£      honor  in  London  if  negotiated  on  or  before  June 

*g       3Oth,  1917,  and  request  you  to  pay  them  at  the 

u      rate  at  which  you  purchase  demand  drafts  on  Lon- 

1      don. 

The  amount  of  each  draft  must  be  inscribed  on 
*       the  back  of  this  letter  and  to  this  we  wish  to  call 
-°      your  special  attention.    This  letter  itself  should  be 
cancelled  and  attached  to  the  final  draft  drawn. 

Please  see  to  it  that  the  drafts  be  signed  in  your 
-^  presence  and  carefully  compare  the  signature  with 
•J3  the  one  below. 

We  are,  Gentlemen, 

Your  obedient  Servants, 
(Signed)  BROWN  BROTHERS  &  Co. 

To  Messieurs 

The  Bankers  mentioned  in  our 

List  of  Correspondents.  THOMAS  H.  WILLIAMS. 

109 


MONEY 

On  one  of  the  pages  of  this  letter  of  credit 
is  printed  a  list  of  correspondents  consisting 
of  banks  and  bankers  in  various  cities  of 
Europe.  The  remaining  pages  contain  blank 
spaces  in  which  are  to  be  written  the  pay- 
ments as  they  are  made  by  such  banks  or 
bankers. 

After  Williams  has  arrived  in  Europe, 
whenever  he  requires  cash,  he  goes  to  the 
office  of  one  of  the  correspondents  named 
in  the  list,  and  shows  his  letter  of  credit.  If 
he  is  in  London,  he  goes  to  the  office  of 
Brown,  Shipley  &Co.,  and  asks  for,  say, ^50. 
He  signs  a  demand  draft  on  them  for  that 
amount,  gives  them  the  draft,  and  receives 
the  amount  of  ^50  in  English  money. 
Brown,  Shipley  &  Co.  write  on  the  letter 
of  credit  that  they  have  paid  the  amount  of 

£5°- 

When  Williams  reaches    Paris,  he  may 

require  more  money.  He  goes  to  the  office 
of  one  of  the  correspondents  named  in  the 
list,  for  instance,  Hottinguer  &  Co.,  and 
asks  for,  say,  £  i o.  He  signs  a  demand  draft 
on  Brown,  Shipley  &  Co.,  London,  for  £10, 
no 


TRAVEL 

to  the  order  of  Hottinguer  &  Co.  The  rate 
of  exchange  between  London  and  Paris  on 
that  day  happens  to  be  Fr.  25.50,  which 
means  that  one  pound  sterling  is  worth 
twenty-five  francs  and  fifty  centimes.  Hot- 
tinguer &  Co.  give  Williams  255  francs  in 
French  money,  and  write  on  the  letter  of 
credit  that  they  have  paid  the  amount  of^  10. 

In  Berlin  Williams  needs  more  money. 
He  goes  to  the  Deutsche  Bank  and  gives 
them  a  demand  draft  to  their  order  on 
Brown,  Shipley  &  Co.,  London,  for  £20. 
The  rate  of  exchange  between  London  and 
Berlin  on  that  date  is  Mks.  20.80,  which 
means  that  one  pound  sterling  is  worth  20 
marks  and  80  pfennigs.  The  Deutsche 
Bank  pays  416  marks  in  German  money  to 
Williams  and  writes  on  the  letter  of  credit 
that  a  payment  of  £20  has  been  made. 

In  every  case  the  banker  from  whom 
Williams  receives  money  sees  him  sign  the 
draft  and  compares  his  signature  on  the 
draft  with  his  signature  on  the  letter  of 
credit.  If  the  letter  of  credit  is  lost  or  stolen, 
Williams  should  notify  Brown,  Shipley  & 
in 


MONEY 

Co.  at  once,  and  they  will  immediately  no- 
tify all  other  correspondents  on  the  list.  In 
the  mean  time,  the  only  way  in  which  money 
can  be  obtained  by  the  person  who  has  stolen 
the  letter  of  credit  is  in  case  he  can  imitate 
the  signature  of  Williams  exactly,  in  the  pre- 
sence of  some  banker,  and  this  is  not  likely 
to  happen.  Some  bankers,  when  selling  let- 
ters of  credit,  give  two  separate  documents, 
one  of  which  contains  very  little  except  the 
specimen  signature  of  Williams.  In  this  case 
Williams  is  expected  to  keep  each  document 
in  a  separate  place,  so  that  he  would  not  be 
likely  to  be  robbed  of  both  at  the  same  time. 

In  case  Williams  has  not  drawn  the  entire 
amount  of  the  letter  of  credit,  he  can,  on 
his  return  to  New  York,  obtain  the  balance 
remaining  unused  from  Brown  Brothers 
&Co. 

Besides  purchasing  a  letter  of  credit  out- 
right for  cash,  there  are  other  ways  by  which 
Williams  can  purchase  it. 

If  he  has  good  credit  at  his  bank,  or  if 
he  is  a  member  of  a  firm  or  corporation 
which  has  a  high  reputation,  he  can  arrange 

112 


TRAVEL 

for  his  bank  or  his  business  associates  to 
give  a  guaranty  to  Brown  Brothers  &  Co. 
In  such  a  case,  Brown  Brothers  &  Co.  will 
give  him  a  letter  of  credit  without  any  cash 
payment.  As  soon  as  each  of  his  drafts  has 
been  paid  by  Brown,  Shipley  &  Co.  in  Lon- 
don, they  will  send  the  paid  draft  to  Brown 
Brothers  &  Co.  in  New  York.  Then  Brown 
Brothers  &  Co.  will  figure  out  the  amount 
due  in  United  States  money  at  the  rate  of 
exchange  on  the  day  when  they  receive  the 
draft.  They  will  send  a  bill  for  that  amount, 
with  the  draft,  to  the  bank  or  firm  or  cor- 
poration which  gave  the  guaranty.  This  bill 
will  be  paid  and  the  amount  will  be  charged 
to  the  account  of  Williams. 

Another  way  is  for  Williams  to  deposit 
money  with  Brown  Brothers  &  Co.,  thus 
making  them  his  bankers.  They  will  allow 
him  interest  on  the  deposit.  As  each  of  his 
drafts  is  paid  in  London  and  is  sent  to  New 
York,  Brown  Brothers  &  Co.  will  charge 
the  amount  of  the  draft  against  the  account 
of  Williams  with  them. 

Another  method  is  for  Williams  to  deposit 


MONEY 

with  Brown  Brothers  &  Co.  railroad  or 
other  bonds,  or  real  estate  mortgages,  or 
some  other  form  of  collateral  security  which 
he  may  possess.  Brown  Brothers  &  Co.  will 
collect  the  income  from  such  security  as  it 
becomes  due,  and  will  charge  the  amount  of 
his  drafts  against  the  money  thus  collected. 
They  will  charge  a  small  commission  for 
their  services  in  collecting  such  income. 

The  following  is  one  of  the  forms  of  a 
traveler's  check:  — 

When  countersigned  below  jj0    j  CQOOO 

with  this  signature.  ...      ,r    .     . 

*  2  (Signed)  THOMAS  H.  WILLIAMS.    New  York>  March  J>  '9l6' 
„•  o 

«'  o*     Brown  Brothers  &  Co.  of  New  York 

S?  O 

c  *$  or  ourselves 

§  j     pay   this   travelers  cheque  for  Ten 

-a  /*~N  ** 
Qr  w  12  %     Dollars,  or  its  equivalent  as  specified, 

O  £*•£! 

*8  w  w  I     to  the  order  of $10 

"iL  m     if  negotiated  within  two  years  from 

^  Countersignature.          ^    jts  date  jn  accordance  with  the  di- 


o   ..............         Q    rections  printed  hereon. 

PQ 

See  signature  above.  (Signed)      BROWN,  SHIPLEY  &  Co. 

In  the  blank   space  shown  in  the  form 
above,  the  following  amounts  are  given  as 
114 


TRAVEL 

the  equivalents  which  will  be  paid  in  vari- 
ous countries:  — 

Great  Britain,  Ireland £2'°* Io 

France,  Belgium,  Switzerland Fr.  51.25 

Denmark,  Norway,  Sweden Kr.  36.70 

Holland Fl.  24.55 

Germany Mks.  41.65 

Russia Roubles  1 9.20 

Austria,  Hungary Kf.  49.00 

Italy Lire  51.25 

U.S.  America,  Canada $10.00 

Travelers'  checks  are  issued  by  the  same 
banks  and  bankers  as  those  that  issue  letters 
of  credit,  and  they  are  also  issued  by  ex- 
press companies  and  by  tourists'  agencies. 
They  are  issued  in  little  books,  each  book 
containing  a  certain  number  of  checks  for 
$10,  $10,  $50,  and  |ioo. 

Williams  could  pay  Brown  Brothers  & 
Co.  $800,  and  he  would  receive  in  exchange 
a  book  containing  checks  like  the  above  for 
different  sums;  for  instance:  — 

20  checks  for  $10  each $200 

10  20         200 

4  50         200 

2  100         200 

Total $800 

"5 


MONEY 

Whenever  he  needed  cash  in  any  city  of 
Europe,  Williams  would  look  in  his  list  for 
the  name  of  the  correspondent  of  Brown 
Brothers  &  Co.  in  that  city.  He  would  write 
the  name  of  such  correspondent  in  the  blank 
space  on  the  check,  and  would  write  his  own 
name  on  the  line  underneath  the  word  "  count- 
ersignature."  Then  he  could  obtain  from 
that  correspondent  the  amount  of  money 
specified  on  the  check. 

If  any  of  the  checks  remain  unused,  they 
can  be  cashed  by  Williams  on  his  return,  at 
the  office  of  Brown  Brothers  &  Co. 


CHAPTER  XV 
BUYING 

BUSINESS  practice  may  properly  be  divided 
into  six  parts:  — 

Buying,  Receiving,  Paying, 
Selling,  Delivering,  Collecting. 

We  shall  first  give  two  words  of  advice 
in  regard  to  buying.  The  two  words  are 
"  caveat  emptor."  They  mean,  "  Let  the 
buyer  beware  ";  and  these  words  have  been 
used  in  law  for  generations.  The  law  takes 
it  for  granted  that  a  man  who  buys  some- 
thing will  have  enough  interest  in  what  he 
is  doing  to  examine  with  reasonable  care 
the  article  which  he  buys.  The  law  gives 
him  credit  also  for  sufficient  intelligence, 
when  he  looks  at  an  article,  to  see  what  it 
would  appear  to  be  to  a  man  of  ordinary 
common  sense.  If  a  man  buys  something, 
and  finds  out  afterwards  that  he  did  not  get 
what  he  thought  he  was  buying,  he  can  either 


MONEY 

suffer  his  loss  or  call  on  the  law  to  give  him 
what  he  thinks  are  his  rights.  If  he  chooses 
the  second  course  of  action,  he  begins  by  en- 
gaging a  lawyer.  Then  his  lawyer  brings 
suit  against  the  seller  of  the  article.  After  a 
long  time  —  usually  a  very  long  time  —  the 
case  is  tried  in  the  courts.  It  is  not  enough 
for  the  buyer  to  feel  perfectly  sure  that  he 
has  been  cheated.  He  must  actually  prove 
that  he  has  been  cheated.  He  must  prove 
that,  in  buying  the  article,  he  showed  as 
much  care  as  a  man  of  ordinary  common 
sense  might  have  been  expected  to  show. 
And  then  he  must  prove  that  the  seller 
cheated  him  by  making  him  believe  that  the 
article  was  more  valuable  to  him  than  it 
really  was.  If  he  cannot  prove  these  to  be 
facts,  he  will  not  only  suffer  the  same  loss 
as  though  he  had  not  gone  to  law,  but  he 
will  be  obliged  to  pay  his  lawyer's  fee,  and 
probably  all  or  a  part  of  the  cost  of  the  trial 
It  can  readily  be  understood,  then,  that  a 
buyer  must  not  be  careless.  Fortunately, 
most  people  are  honest.  Some  are  honest 
only  because  they  believe  in  the  old  proverb, 
118 


BUYING 

"  Honesty  is  the  best  policy" ;  but  a  greater 
number  of  people  are  honest  because  it  is 
their  nature  to  be  so.  And  the  meaning  of 
the  word  "honesty,"  in  business,  is  becom- 
ing stricter  as  time  goes  on.  Twenty  years 
ago,  business  men  thought  that  certain  ac- 
tions were  perfectly  fair  which  to-day  no 
honorable  business  man  would  think  of 
committing. 

But  it  is  not  possible  for  a  merchant  to 
look  at  everything  which  he  buys.  If  he 
employs  a  buyer,  of  course  the  buyer  is 
bound  to  show  reasonable  care  in  making 
purchases.  But  many  purchases  are  made 
from  sellers  who  are  far  away,  and  from 
whom  the  goods  are  ordered  by  mail  or 
telegraph.  In  such  cases  the  buyer  is  pro- 
tected by  custom.  He  is  usually  not  ex- 
pected to  pay  for  the  goods  until  they  have 
been  sent  to  him  and  he  has  had  a  chance 
to  examine  them.  If  he  finds  that  the  goods 
are  not  what  they  are  represented  to  be,  he 
can  refuse  to  pay  for  them.  Then  the  seller 
can  take  them  back  or  else  he,  in  his  turn, 
can  call  in  the  aid  of  the  law.  But  in  this  case 
119 


MONEY 

the  seller  will  be  forced  to  prove  that  the 
goods  were  exactly  what  the  buyer  had 
agreed  to  purchase. 

A  merchant  always  wishes  to  buy  for  as 
low  a  price  as  possible  and  to  sell  for  as  high 
a  price  as  possible.  There  are  two  kinds  of 
buying  by  which  a  low  price  can  be  ex- 
pected —  buying  a  large  quantity  and  pay- 
ing promptly.  Either,  or  both,  of  these 
methods  can  be  adopted  if  the  buyer  is  able 
to  make  use  of  them.  Some  merchants,  who 
have  very  little  ready  money,  buy  goods 
with  the  agreement  that  they  can  wait  a 
long  time,  say  four  months,  before  paying 
for  them.  They  expect  to  be  able  to  sell 
the  goods  to  their  customers  and  collect  the 
money  for  them  before  they  themselves  are 
obliged  to  pay.  In  this  case  they  cannot 
buy  the  goods  as  cheaply  as  if  they  paid 
cash,  and  thus  they  cannot  expect  to  make 
so  much  profit.  Moreover,  if  the  four  months 
pass  by  before  they  have  sold  many  of  the 
goods  or  before  they  have  been  paid  for, 
they  themselves  will  be  called  upon  to  pay. 
Unless  they  can  get  cash  to  pay  the  bill, 
1 20 


BUYING 

they  will  be  forced  to  fail.  A  merchant  may 
have  goods  in  his  store  worth  thousands  of 
dollars,  but  if  he  cannot  obtain  cash  to  pay 
his  bills  when  due,  he  fails.1 

Buying  a  very  large  quantity  of  goods 
will  generally  cause  a  lower  price  to  be  made 
than  if  a  smaller  quantity  were  bought.  But 
some  merchants  have  ruined  themselves  by 
purchasing  larger  quantities  than  were  rea- 
sonable. They  could  not  find  customers  for 
them  all,  and  the  goods  became  less  valu- 
able as  time  went  on  and  as  they  grew  older 
and  stale  or  out  of  fashion. 

A  merchant  is  likely  to  be  more  success- 
ful if  he  is  able  to  buy  as  large  a  quantity 
of  goods  at  one  time  as  he  can  sell  quickly, 
and  if  he  has  sufficient  capital  to  pay  cash 
for  them  at  once. 

The  seller  often  gives  the  buyer  a  choice 
in  the  time  of  payment.  When  the  goods 
are  ordered  and  have  been  sent,  the  seller 
makes  out  a  bill  with  some  such  heading  as 

1  The  meaning  of  the  word  "  fail,"  in  a  business 
sense,  will  be  explained  when  we  discuss  the  subject  of 
paying  for  purchases. 

121 


MONEY 

this:  "Terms:  2/10,  1/30,  net  60."  This 
means  that,  if  the  buyer  waits  60  days  be- 
fore paying,  he  must  pay  the  full  amount 
of  the  bill ;  if  he  waits  not  more  than  30 
days,  he  can  deduct  i  per  cent  from  the 
bill;  and  if  he  pays  before  10  days  have 
passed,  he  can  deduct  2  per  cent  from  the 
bill. 

By  purchasing  goods  in  fairly  large  quan- 
tity, and  paying  cash,  a  merchant  can  ex- 
pect to  make  a  reasonable  profit  on  selling. 
Sometimes,  however,  a  buyer  who  watches 
for  opportunities  and  takes  advantage  of 
them  has  unusual  chances  to  obtain  goods 
at  special  prices.  In  cases  like  these,  he  will 
have  an  extra  profit  when  the  goods  are 
sold,  and  this  is  known  in  the  language  of 
accounts  as  "  profit  on  buying." 


CHAPTER   XVI 
RECEIVING 

WHEN  merchandise  has  been  bought,  it 
can  be  delivered  to  the  buyer  in  one  of  sev- 
eral ways:  he  may  receive  it  in. his  hands 
across  the  counter;  it  may  be  sent  to  him 
by  mail ;  the  seller  may  send  it  to  him  by 
messenger  or  delivery  wagon ;  or  it  may  be 
sent  by  express  or  by  freight.  Sending 
goods  by  freight  is  usually  both  the  slowest 
and  the  cheapest  method  of  shipment.  By 
every  one  of  these  methods  except  the  last, 
the  merchandise  is  delivered  directly  to  the 
buyer.  Goods  shipped  to  him  by  freight 
are  brought  by  a  railroad  or  steamship  line 
to  its  freight  station,  and  the  buyer  must 
send  to  that  place  for  them. 

In  every  case,  except  when  goods  are  sold 
and  delivered  across  the  counter,  it  is  the 
custom  for  the  buyer,  or  some  one  who  rep- 
resents him,  to  sign  a  receipt  for  the  goods 
when  they  are  delivered.  When  merchandise 
is  sent  by  freight,  the  railroad  company  or 
123 


MONEY 

steamship  line  gives  the  shipper  (the  per- 
son who  sends  the  goods)  a  paper  called 
a  bill  of  lading.  This  paper  is  a  receipt  for 
the  goods.  It  states  exactly  what  goods  have 
been  received,  where  they  are  to  be  taken, 
to  whom  they  are  to  be  delivered,  and  how 
much  is  to  be  paid  to  the  railroad  or  steam- 
ship line  for  its  services. 

The  bill  of  lading  may  state  that  the 
goods  are  to  be  delivered  to  a  certain  per- 
son, or  it  may  state  that  the  goods  are  to 
be  delivered  to  the  order  of  a  certain  person. 
In  the  first  case,  the  person  to  whom  the 
goods  are  shipped  can  send  his  teamster  for 
them  with  a  truck,  and  the  goods  will  be 
delivered  as  soon  as  a  receipt  has  been 
signed  by  the  truckman.  But  if  the  bill  of 
lading  states  that  the  goods  are  to  be  de- 
livered to  the  order  of  a  certain  person,  the 
railroad  or  steamship  company  will  not  de- 
liver the  goods  unless  the  bill  of  lading  is 
handed  to  them  by  the  person  who  comes 
for  the  goods.  Also,  the  person  to  whose 
order  goods  have  been  sent  must  endorse 
the  bill  of  lading  by  writing  his  name  on 
124 


RECEIVING 

the  back  of  it.  If  he  wishes  to  do  so,  he  can 
sell  the  goods  to  some  one  else  before  he 
receives  them.  In  that  case  he  endorses  the 
bill  of  lading  and  gives  it  to  the  buyer,  and 
the  buyer  sends  his  own  truckman  with  the 
bill  of  lading,  to  get  the  goods. 

Railroads  and  steamship  companies  are 
accustomed,  as  soon  as  goods  arrive  at 
the  freight  station,  to  send  written  notices  to 
persons  to  whom  the  goods  are  shipped. 
A  certain  time  is  allowed  in  which  to  call 
for  the  goods.  After  that  time  a  charge  is 
made  for  storage.  The  length  of  time  al- 
lowed is  fixed  by  custom,  or  else  is  stated 
in  the  bill  of  lading  or  arrival  notice. 

When  merchandise  which  has  been 
bought  has  been  received  in  one  of  these 
ways,  the  merchant  or  some  clerk  should 
examine  it  as  carefully  as  may  be  necessary, 
to  see  if  the  merchandise  which  has  been  re- 
ceived is  of  the  right  quality  and  quantity. 
Then  it  is  put  in  its  proper  place  in  the 
store  or  warehouse.  A  record  should  be 
made  of  all  goods  as  soon  as  they  have  been 
received.  This  record  is  written  in  the 
125 


MONEY 

stock  book)  and  the  figures  in  it  represent 
quantities  —  not  dollars  and  cents.  A  sepa- 
rate page,  or  part  of  a  page,  is  given  to  each 
purchase.  The  goods  are  described  by  their 
trade  name,  the  mark  or  brand  on  the  pack- 
ages, and  the  quantity.  Then,  as  the  goods 
are  delivered  after  being  sold,  the  deliveries 
are  recorded,  one  after  another,  on  the  same 
page,  until  all  have  been  delivered. 

The  stock  clerk  is  responsible  for  keep- 
ing the  stock  book  correctly.  From  time  to 
time  it  is  the  custom  for  merchants  to  make 
an  inventory  of  their  goods;  or,  as  it  is 
sometimes  expressed,  to  take  account  of 
stock.  At  such  times,  the  stock  clerk  takes 
his  stock  book  and  a  piece  of  paper,  and 
figures  out  what  goods  are  in  the  store  accord- 
ing to  the  records.  While  he  is  doing  this, 
another  clerk  is  engaged  in  counting  the 
goods  and  making  a  list  of  what  is  actually 
in  the  store.  The  two  results  ought  to  agree, 
and  will,  unless  some  mistake  has  been  made. 

All  goods  in  the  store  should  be  pro- 
tected by  fire  insurance. 

When  merchandise  is  sent  by  express, 
126 


RECEIVING 

the  express  company  agrees  to  deliver  it  in 
good  order  to  the  person  to  whom  it  is  sent. 
If  the  merchandise  is  destroyed  or  damaged 
by  fire  or  otherwise,  before  it  is  delivered 
the  express  company  must  pay  for  it.  If 
merchandise  is  shipped  by  freight  on  a  rail- 
road, the  company  must  pay  for  damages 
by  fire  or  otherwise  while  the  goods  are  still 
in  the  cars.  After  they  have  been  unloaded 
at  the  freight  station  the  owner  must  insure 
the  goods  against  fire. 

When  merchandise  is  sent  by  freight  in 
a  ship,  the  owners  of  the  ship  are  not  re- 
sponsible for  damage  to  the  goods  during 
the  voyage.  The  owner  of  the  goods  is 
obliged  to  protect  them  by  what  is  called 
marine  insurance. 

In  the  case  of  fire  insurance  and  marine 
insurance,  a  certain  sum  of  money  is  paid 
to  the  insurance  company  by  the  owner  of 
the  merchandise.  The  company  gives  the 
owner  a  paper  called  a  policy,  which  is  a 
promise  to  pay  the  value  of  certain  goods 
in  case  they  are  destroyed  or  damaged  within 
a  certain  time  or  during  a  certain  voyage. 


CHAPTER  XVII 
PAYING 

A  BUSINESS  man  should  try  to  arrange 
his  affairs  so  that  it  will  be  convenient  for 
him  always  to  pay  at  the  proper  time  for 
what  he  has  bought.  Of  course  he  is  bound 
to  pay  then,  whether  it  is  convenient  or  not. 
Sometimes  his  plans  may  go  wrong.  A  cus- 
tomer may  not  pay  money  that  seemed 
almost  certain  to  be  received,  or  business 
may  be  dull  and  sales  be  few.  However, 
there  is  one  thing  he  can  always  do,  and 
there  is  no  excuse  for  not  doing  it.  He  can 
keep  before  him  a  list  of  the  payments 
which  .he  is  bound  to  make  with  the  dates 
when  he  should  pay  the  amounts  due. 

If  a  merchant  has  agreed  to  pay  for  goods 
on  a  certain  date,  or  if  he  has  signed  a  note 
or  accepted  a  draft  payable  on  a  certain  date, 
he  must  arrange  to  have  the  money  ready 
at  that  time  or  the  consequences  may  be 
very  serious.  If  he  cannot  pay  the  money 
128 


PAYING 

when  it  is  due  his  business  reputation  is  al- 
ways injured.  He  may  ask  the  person  or 
firm  or  corporation,  to  whom  he  owes  the 
money  to  allow  him  more  time,  but  even  if 
his  request  is  granted,  that  person  or  firm 
or  corporation  will  never  again  have  the 
same  confidence  in  him.  Moreover,  the 
man  to  whom  the  money  is  owed  may  re- 
fuse the  request.  If  he  chooses  he  can  go 
to  law  and  sue  for  the  money  due.  When 
he  has  proved  that  the  money  was  due  he 
can  obtain  a  judgment.  That  is  an  order 
from  the  court  which  can  be  given  to  an 
officer  called  a  marshal.  The  marshal  has 
authority  to  take  as  much  property  belong- 
ing to  the  man  who  owes  money  as  will 
be  sufficient  when  sold  to  pay  the  debt. 

When  this  happens  to  a  merchant  he  is 
said  to  have  "  failed."  When  a  merchant 
cannot  pay  money  at  the  time  it  is  due,  he 
usually  does  not  wait  for  a  judgment  to  be 
obtained  and  for  his  property  to  be  seized. 
He  signs  a  paper  called  an  assignment^  by 
which  he  turns  over  all  his  property  to  some 
person  whom  he  trusts  who  is  called  the 
129 


MONEY 

assignee.  The  duty  of  this  person  is  to  take 
charge  of  the  business  affairs  of  the  mer- 
chant, to  sell  his  property  for  as  much  as 
possible  and  as  soon  as  possible,  and  to  pay 
all  his  debts  if  there  is  money  enough  ob- 
tained to  do  so.  When  a  man  fails,  it  does 
not  always  mean  that  he  is  a  bankrupt.  A 
bankrupt  is  a  person  who  is  unable  to  pay 
what  he  owes  and  who  has  been  allowed  by 
the  law  to  give  up  all  his  property  to  his 
creditors ;  that  is  to  say,  to  the  persons  to 
whom  he  owes  money.  After  he  has  done 
this  according  to  certain  forms  of  law,  the 
law  declares  that  he  no  longer  owes  any 
money.  He  can  begin  business  again  free 
of  debt,  even  if  the  property  which  he  gave 
up  to  his  creditors  was  not  enough  or  nearly 
enough  to  pay  what  he  owed  them.  Some- 
times, however,  a  merchant  who  makes  an 
assignment  has  property  which  is  worth 
much  more  money  than  the  amount  he 
owes.  In  this  case  the  merchant  is  said  to 
be  solvent.  His  trouble  is  that,  although  he 
has  enough  property,  he  has  not  enough  of 
that  property  in  the  form  of  cash.  The  as- 
130 


PAYING 

signee  takes  charge  of  the  business,  sells 
whatever  property  he  can  dispose  of  to  best 
advantage,  and  pays  the  creditors.  Then 
whatever  is  left  belongs  to  the  merchant. 
On  the  other  hand,  a  man  who  owes  more 
than  the  value  of  his  property,  is  said  to  be 
insolvent,  but  there  have  been  merchants 
who  have  managed  to  continue  doing  busi- 
ness for  a  long  time  after  they  were  insol- 
vent, because  nobody  knew  it.  They  were 
able  to  get  enough  cash  to  pay  their  debts 
when  they  were  due  and  they  kept  on  doing 
business  in  hope  that  some  lucky  chance 
might  make  them  solvent  once  more. 

However,  when  a  merchant  makes  an 
assignment,  it  is  very  likely  that  he  will 
turn  out  to  be  insolvent.  It  is  reasonable  to 
suppose  that  a  merchant  will  use  every  pos- 
sible effort  to  raise  money  before  he  will  ad- 
mit that  he  has  failed.  He  will  borrow  from 
his  friends,  sell  goods  at  a  sacrifice,  do  al- 
most anything  possible,  before  giving  up  the 
fight. 

In  paying  for  goods  which  he  has  bought, 
a  merchant  sends  a  check  for  the  amount 


MONEY 

which  is  due ;  or  he  gives  a  check  to  the 
collector  who  calls  for  the  payment ;  or  he 
pays,  at  the  time  when  it  is  due,  the  note 
which  he  gave  to  the  seller  of  the  goods ; 
or  he  pays,  at  the  time  when  it  is  due,  the 
draft  drawn  by  the  seller  of  the  goods.  Usu- 
ally when  a  merchant  signs  a  note  or  accepts 
a  draft  he  makes  it  payable  at  his  bank. 
Then  it  becomes  his  duty  to  see  that  he  has 
enough  money  in  his  bank  to  pay  the  note 
or  the  draft  when  it  is  presented  for  pay- 
ment. 

If  a  merchant  has  enough  ready  money 
on  hand  he  will  pay  cash  when  he  buys 
goods,  as  he  can  generally  buy  them  cheaper 
if  he  pays  cash.  If  he  has  bought  goods  "  on 
time,"  it  may  happen  that  he  has  cash  to 
spare  before  the  time  has  arrived  when  he 
must  pay.  He  should  then  look  over  the 
bills  which  have  been  sent  to  him  for  goods 
that  he  has  bought,  and  find  out  whether 
he  can  obtain  a  reduction  in  price  by  paying 
ahead  of  time.  He  may,  for  instance,  find 
a  bill  for  goods  on  which  the  terms  are 
"2%  10  days,  i%  30  days,  net  60  days." 
132 


PAYING 

It  may  be  just  25  days  since  he  bought  the 
goods.  It  is  too  late  to  obtain  the  discount 
of  2  per  cent  by  paying  within  10  days,  but 
he  still  has  the  choice  of  paying  within  the 
period  of  30  days  and  getting  a  discount  of 
i  per  cent,  instead  of  waiting  until  the  pe- 
riod of  60  days  has  gone  by. 

Business  is  regulated  by  law  and  by  cus- 
tom. If  the  law  does  not  say  what  is  to  be 
done  in  any  particular  case,  then  the  custom 
of  the  trade  is  the  rule  to  be  followed.  In 
the  payment  of  bills,  unless  there  is  a  dif- 
ferent custom  in  some  particular  line  of 
business,  the  money  is  to  be  paid  to  the 
seller  on  the  date  due.  For  example,  a  mer- 
chant in  New  York  sells  goods  to  a  mer- 
chant in  Boston.  The  bill  is  dated  Decem- 
ber 4,  1916,  and  the  terms  are  60  days. 
Payment  should  be  made  in  New  Tork  on 
February  2,  1917,  on  which  date  the  bill  is 
due.  If  the  Boston  merchant  mails  a  check 
on  February  2,  he  has  not  paid  his  bill 
properly.  He  is  a  day  behind.  If  he  sends 
a  check  on  a  Boston  bank  he  has  done  still 
worse,  because  the  New  York  merchant  may 


MONEY 

have  to  wait  for  his  money  until  the  check 
has  been  deposited  in  his  own  bank  and  has 
been  sent  on  to  Boston  for  collection.  The 
proper  way  is  for  the  Boston  merchant  to  get 
from  his  bank  a  draft  on  a  New  York  bank 
for  the  amount  due,  and  to  mail  this  draft 
to  the  New  York  merchant  on  February  i. 
Some  business  men  wait  a  day  or  two  after 
a  bill  is  due  before  paying  it.  Perhaps  the 
person  who  receives  the  money  will  accept  it 
and  say  nothing  for  fear  of  offending  his  cus- 
tomer. Nevertheless,  it  is  a  tricky  way  of 
doing  business  and  will  probably  hurt  a  mer- 
chant's reputation  in  time. 


CHAPTER  XVIII 
SELLING 

A  MERCHANT  either  buys  goods  which,  as 
soon  as  he  receives  them,  are  ready  for  sale 
to  his  customers,  or  else  he  buys  raw  ma- 
terials and  manufactures  the  raw  materials 
into  the  articles  which  he  intends  to  sell.  In 
either  case,  the  goods  are  ready,  sooner  or 
later,  to  be  sold.  The  merchant  then  can 
wait  for  customers  to  come  to  him,  or  he 
can  go  and  look  for  customers  or  send  sales- 
men to  do  so,  or  he  can  combine  these  two 
methods.  At  the  present  time  almost  all 
merchants  advertise  their  goods  in  some  way 
or  other.  An  advertisement  of  any  kind  may 
be  considered  a  silent  salesman,  unless  it  is 
a  device  for  attracting  attention  by  constant 
mechanical  rapping  on  the  window  or  some- 
thing of  that  nature,  in  which  case  it  cannot 
in  fact  be  considered  silent.  When  a  new 
article  is  about  to  be  offered  for  sale,  large 
sums  of  money  are  sometimes  spent  for  ad- 
vertising before  any  profits  can  possibly  be 
'35 


MONEY 

expected.  A  great  deal  of  advertising  may 
sometimes  result  in  large  sales  of  even  a  very 
inferior  article,  but  such  sales  cannot  con- 
tinue. When  the  public  discovers  that  the 
article  is  worthless  or  inferior,  the  sales  will 
come  to  an  end.  But  a  reasonable  amount 
of  money  paid  for  advertising  an  article  of 
real  merit  has  been  proved  to  be  profitable 
in  many  cases.  The  advertising  manager  of 
a  certain  well-known  household  article  is  re- 
ported to  have  said  that  even  if  every  woman 
in  the  United  States  bought  that  article  regu- 
larly, he  would  still  continue  to  advertise  it. 
Unless  he  kept  on  telling  his  customers  that 
his  goods  were  the  best  he  would  expect  his 
sales  to  grow  smaller. 

When  merchandise  is  to  be  sold,  one  of 
the  most  important  matters  to  be  considered 
is  the  price  to  be  set  upon  it.  Of  course  in 
the  case  of  goods  which  are  sold  by  many 
merchants,  it  is  necessary  to  consider  the 
price  charged  by  competitors.  A  merchant 
cannot  expect  to  sell  many  goods  if  other 
merchants  are  selling  exactly  the  same  kind 
of  goods  for  less  money.  We  will  suppose, 

136 


SELLING 

however,  that  the  merchant  whose  affairs  we 
are  discussing  is  a  man  who  understands  his 
business.  He  knows  that  his  competitors  are 
not  in  business  for  their  health,  but  that  they 
are  trying  to  make  money  just  as  he  is  try- 
ing to  do.  In  any  event,  it  is  better  to  let 
his  competitors  do  all  the  business  unless  he 
himself  can  sell  for  a  profit. 

A  merchant  can  tell,  by  looking  at  his 
bills,  what  price  he  paid  for  the  goods  which 
he  bought,  how  much  it  cost  him  for  freight 
and  marine  insurance  and  for  cartage  from 
the  freight  station  to  his  store.  He  knows 
that  he  must  make  his  selling  price  more 
than  this  cost  in  order  that  he  may  make 
a  profit.  But  how  much  more  ?  That  is  the 
question.  Being  able  to  figure  costs  correctly 
sometimes  makes  all  the  difference  between 
success  and  failure  in  business,  for  there  are 
always  three  kinds  of  costs  and  sometimes 
four. 

In  the  beginning  there  is  the  price  paid 
for  the  goods  and  the  expense  of  bringing 
them  to  the  store  or  warehouse.  This  is  the 
first  cost. 


MONEY 

Then  comes  the  manufacturing  cost>\n  case 
the  merchant  is  a  manufacturer.  This  in- 
cludes the  wear  and  tear  on  machinery,  the 
replacing  of  worn-out  machinery  by  new, 
the  cost  of  lighting  and  heating  the  factory, 
the  wages  of  the  factory  workers,  fire  insur- 
ance, taxes  on  machinery,  and  the  cost  of 
fuel. 

Next  we  have  the  selling  cost.  This  in- 
cludes the  salaries  and  expenses  of  salesmen, 
the  freight  on  goods  shipped  to  customers 
and  other  expenses  of  shipping  goods,  in- 
surance on  goods  which  are  ready  for  sale, 
taxes  on  the  same  goods,  and  advertising. 

Finally,  there  is  the  overhead  cost.  This 
includes  rent  and  insurance  on  buildings, 
office  salaries,  stationery,  postage  and  other 
office  supplies,  and  wear  and  tear  on  office 
furniture  and  fixtures.  If  the  merchant  owns 
his  buildings,  then  taxes  take  the  place  of 
rent. 

Let  us  now  suppose  that  the  merchant  is 
not  a  manufacturer.  He  must  then  consider 
first  cost,  selling  cost,  and  overhead  cost. 
He  buys  2000  of  the  articles  in  which  he 

138 


SELLING 

deals,  which  cost  him  $2$  each  when  de- 
livered in  his  store.  The  costs  are  as  follows  : 

First  cost $56,000.00 

Selling  cost N 6, 500.00 

Overhead  cost. .  5,500.00 


Total $68,000.00 

He  sells  the  articles  in  the  course 
of  a  year  for  $3  5.00  each  and 
receives  . .  .  .$70,000.00 


His  profit  is $2,000.00 

Let  us  now  consider  the  difference  be- 
tween selling  cost  and  overhead  cost.  The 
selling  cost  is  generally  greater  or  less  ac- 
cording to  the  amount  of  business  done. 
The  overhead  cost  generally  remains  the 
same,  whether  many  goods  are  sold  or  only 
a  few.  The  merchant  looks  over  his  ac- 
counts and  finds  that  the  price  which  he  is 
charging  his  customers  is  25  per  cent  above 
his  own  first  cost.  He  knows  that  he  cannot 
charge  more,  because  his  competitors  are 
selling  the  same  goods  at  the  same  price. 
He  finds  that  he  is  paying  only  the  regular 
rates  of  salaries  and  wages  and  that  his  sales- 
139 


MONEY 

men's  expenses  and  his  other  charges  are  no 
more  than  reasonable.  There  is  only  one 
answer.  The  overhead  charges  are  too  great 
in  proportion  to  the  amount  of  business 
done.  He  must  sell  more  goods  or  go  out 
of  business.  He  decides  to  engage  twice  as 
many  salesmen  and  to  double  the  amount 
of  his  advertising.  By  this  plan  he  succeeds 
in  selling  4000  articles  in  a  year  instead  of 
2000. 

The  results  are  as  follows  :  — 

First  cost $112,000.00 

Selling  cost 1 3,000.00 

Overhead  cost 5,500.00 


Total $130,500.00 

Sales 140,000.00 


Profit $9,500.00 

By  doing  twice  as  much  business,  he  has 
made  nearly  five  times  as  much  profit.  In 
the  first  case,  the  merchant  sold  2000  ar- 
ticles and  made  a  net  profit  of  $2000,  that 
is,  $ i  each.  In  the  second  case,  he  sold  4000 
articles  and  made  a  net  profit  of  $9500 ; 
that  is,  $2.37^  each. 

140 


SELLING 

He  is  now  in  a  position  where  he  is  not 
forced  to  keep  the  selling  price  as  high  as 
competition  will  allow  him.  He  has  some 
choice  of  his  own  in  determining  the  price. 
He  calculates  that,  if  he  reduces  the  selling 
price  from  $35  to  $34,  he  can  probably  sell 
6000  articles  in  a  year  instead  of  4000,  and 
also  that  he  can  do  so  without  any  further  in- 
crease in  his  selling  cost.  At  the  end  of  an- 
other year  he  has  sold  6000  articles  and  the 
results  are  as  follows: — 

First  cost $168,000.00 

Selling  cost 13,000.00 

Overhead  cost 5,500.00 


Total $186,500.00 

Sales 204,000.00 


Profit $17,500.00 

The  6000  articles  have  been  sold  at  a  net 
profit  of  $2.9 1 2/$  each.  By  being  able  to  re- 
duce the  price  he  has  sold  fifty  per  cent 
more  goods,  he  has  made  a  greater  net  profit 
on  each  article,  and  best  of  all  he  has  made 
$8000  more  money. 

It  may  be  well  to  add  that  it  is  hardly 
141 


MONEY 

probable  that  a  merchant  could  do  three 
times  his  former  amount  of  business  without 
increasing  his  overhead  charge,  at  least  to 
some  extent. 

Unless  sales  are  made  for  cash,  a  mer- 
chant must  be  careful  to  sell  only  to  cus- 
tomers who  are  likely  to  pay  promptly.  Un- 
less he  happens  to  know  all  of  his  customers 
personally,  which  is  not  often  the  case,  he 
must  make  inquiries  about  them  elsewhere. 
There  are  certain  companies  called  mercantile 
agencies  who  make  it  a  business  to  collect 
important  information  about  business  men. 
By  paying  a  certain  sum  of  money  every 
year  a  merchant  can  obtain  information  from 
one  of  these  agencies  about  his  customers. 
Some  merchants  employ  a  clerk  who  is  called 
the  credit  man.  His  business  is  to  find  out 
everything  he  can  about  the  customers  of  the 
firm  and  not  to  let  them  buy  more  goods 
than  it  is  probable  they  can  pay  for  promptly. 

The  terms  on  which  goods  are  sold  are 

regulated  by  the  custom  of  each  particular 

line  of  business.   In  some  kinds  of  business 

the  customers  are  given  more  time  to  pay 

142 


SELLING 

their  bills  than  in  other  lines  of  trade.  Also 
the  discounts  which  are  allowed  to  customers 
for  more  prompt  payments  vary  according  to 
the  customs  of  different  trades.  Where  the 
custom  permits  it,  a  merchant  generally  asks 
his  customers  to  give  him  a  note  for  the 
amount  of  his  bill  or  else  he  arranges  to 
draw  a  draft  on  the  customer  and  to  have 
the  customer  write  an  acceptance  of  the  draff. 
There  are  two  reasons  for  such  arrangements. 
In  the  first  place,  the  merchant  receives  a 
promise  in  writing  from  his  customer  to  pay 
the  amount  of  the  bill  when  it  becomes  due. 
In  the  second  place,  if  the  merchant  hap- 
pens to  need  cash,  he  can  take  the  note  or 
the  accepted  draft  to  his  bank  and  discount 
it.  It  is  becoming  more  and  more  the  cus- 
tom for  merchants  to  obtain  accepted  drafts 
from  their  customers.  Sometimes,  when  the 
seller  is  a  little  doubtful  of  the  ability  of  his 
customer  to  pay  promptly,  he  agrees  to  make 
a  sale  if  the  buyer  will  give  a  note  and  have 
the  note  endorsed  by  some  one  whom  the 
seller  considers  responsible. 

A  word  of  explanation  is  now  added  as  to 
'43 


MONEY 

the  methods  of  paying  salesmen  for  their 
services :  — 

(1)  A  fixed  sum  as  salary. 

(2)  A  commission,  consisting  of  a  certain 

percentage  on  the  value  of  the  goods 
sold  by  him. 

(3)  Partly  salary  and  partly  commission. 

With  some  exceptions,  the  best  salesmen 
prefer  to  receive  no  salary,  but  a  commission 
only.  The  reason  is  that  an  employer  will 
always  agree  to  pay  a  higher  percentage  of 
commission  on  sales  actually  made,  if  he  is 
under  no  obligation  to  pay  a  fixed  salary 
whether  the  employee  is  successful  in  mak- 
ing sales  or  not. 

A  salesman  who  has  confidence  in  his  own 
ability  will  reason  in  the  following  fashion : 
"Suppose  that  I  get  a  salary.  I  must  sell 
enough  goods  to  satisfy  my  employer  or  I 
shall  sooner  or  later  be  discharged.  I  know 
that  I  am  a  good  salesman  and  of  course  I 
shall  succeed  in  selling  enough  goods  to 
satisfy  my  employer.  Well,  since  I  expect 
to  succeed  I  will  show  my  confidence  in  my- 
144 


SELLING 


self  by  asking  for  a  high  commission,  to  be 
paid  only  if  I  'make  good/  rather  than  a 
small  salary,  to  be  paid  whether  I  make 
good  or  not." 


CHAPTER  XIX 
DELIVERING 

MERCHANDISE  when  sold  may  be  delivered 
to  the  buyer  by  handing  it  to  him  across  the 
counter,  or  it  may  be  sent  to  him  by  mes- 
senger or  delivery  wagon,  or  it  may  be  sent 
by  mail  or  express  or  freight.  In  any  one  of 
these  cases  the  price  of  the  goods  may  be 
collected  on  delivery,  or  the  customer's  ac- 
count may  be  charged  and  payment  may  be 
collected  at  a  future  time.  When  goods  are 
sent  by  messenger  or  delivery  wagon,  it  is 
customary  to  have  a  receipt  prepared  in  ad- 
vance, which  is  to  be  signed  by  the  customer, 
or  by  some  one  who  represents  him,  when  the 
goods  are  delivered.  Merchandise  is  seldom 
sent  by  mail  except  in  small  quantities.  A 
mail  package  can  be  registered,  in  which  case 
the  post-office  officials  will  obtain  a  receipt 
from  the  customer  when  the  package  is  de- 
livered. This  receipt  will  be  returned  to  the 
sender,  if  he  so  requests  at  the  time  the  pack- 
146 


DELIVERING 

age  is  sent.  Goods  in  packages  of  small  size 
but  of  great  value,  such  as  diamonds  or  stocks 
and  bonds,  are  often  sent  by  registered  mail. 
In  such  cases  the  merchandise  is  usually  in- 
sured by  the  sender.  It  is  placed  in  a  pack- 
age by  a  notary  public  who  seals  the  pack- 
age himself  and  mails  it  himself.  Then  the 
notary  signs  a  document  stating  just  what 
he  has  done.  In  case  of  loss  this  document 
is  shown,  as  part  of  the  proof  of  loss,  to  the 
insurance  company  which  issued  a  policy  of 
insurance  on  the  merchandise. 

Goods  sent  by  express  will  be  insured  by 
the  express  company  for  a  payment  in  ad- 
dition to  the  regular  express  charges.  Ex- 
press companies  always  take  a  receipt  when 
packages  are  delivered. 

When  goods  are  sent  by  freight,  it  is 
necessary  to  make  out  at  least  three  copies 
of  a  form  of  receipt  called  a  bill  of  lading. 
The  railroad  or  steamship  company  will 
sign  two  of  the  copies  as  soon  as  the  goods 
are  received  by  them.  The  third  copy  is 
kept  by  the  company.  The  two  signed 
copies  are  given  to  the  person  who  sends 


MONEY 

the  goods.  Sometimes  four  copies  of  the 
bill  of  lading  are  made  out.  This  is  often 
done  when  goods  are  sent  across  the  ocean. 
One  copy,  called  the  captain  s  copy,  is  kept 
by  the  company.  One  signed  copy  is 
marked  <c  Not  negotiable,"  and  this  is  kept 
by  the  sender.  Two  other  copies  are  signed 
and  are  called  negotiable  copies.  They  are 
also  given  to  the  sender.  If  one  copy  is 
sent  to  the  customer  or  to  some  one  else 
by  mail  and  is  lost,  the  other  copy  can  then 
be  sent  in  its  place.  The  steamship  com- 
pany will  deliver  the  goods  on  presentation 
of  either  copy.  When  goods  are  sent  by 
freight,  the  railroad  or  steamship  company 
always  obtains  a  receipt  when  the  goods  are 
delivered.  If  merchandise  is  lost  or  dam- 
aged while  in  the  cars  of  a  railroad  com- 
pany, the  money  value  of  the  loss  or  dam- 
age can  be  collected  from  the  company. 
This  is  not  the  case  when  goods  are  shipped 
by  sea.  The  shipper  must  protect  himself 
against  loss  or  damage  by  obtaining  a 
policy  of  marine  insurance. 

When  goods  are  delivered  to  a  customer 
148 


DELIVERING 

in  any  manner,  the  seller's  stock  clerk 
should  make  a  record  of  the  delivery  on 
his  books.  By  adding  up  the  number  of 
articles  of  each  kind  delivered,  and  sub- 
tracting the  total  from  the  number  of  arti- 
cles of  that  kind  which  he  has  received,  the 
stock  clerk  should  be  able  to  tell  his  em- 
ployer just  how  much  merchandise  of  every 
sort  should  be  in  the  store  or  warehouse. 
The  employer  can  then  find  out  by  actual 
count  whether  or  not  the  goods  are  really 
there. 

In  large  business  houses  when  a  sale  has 
been  made  or  the  time  has  arrived  when  an 
order  is  to  be  shipped,  the  sales  department 
makes  out  a  slip,  stating  just  what  goods 
are  to  be  sent.  A  copy  of  this  slip  is  kept 
in  the  sales  department  and  from  it  a  bill  is 
made  out  and  mailed  to  the  customer.  The 
original  slip  is  sent  to  the  stock  clerk.  He 
picks  out  the  proper  goods  and  sends  them 
to  the  customer,  or  else  turns  them  over  to 
the  delivery  department  (if  there  is  such  a 
department)  for  shipment.  All  this  work  is 
carefully  checked,  to  avoid  mistakes,  includ- 
149 


MONEY 


ing  the  sales  slip,  the  bill  (or  invoice,  as  it 
is  sometimes  called),  the  selection  of  the 
goods,  and  their  delivery  to  whatever  carrier 
is  to  take  charge  of  them. 


CHAPTER  XX 
COLLECTING 

WHEN  merchandise  is  sold,  the  price  is 
collected  from  the  customer  either  at  the 
time  when  the  goods  are  delivered  or  at 
some  time  thereafter.  In  either  case,  there 
are  different  methods  of  collecting  the 
money. 

The  simplest  method  is  to  collect  the 
cash  at  the  time  when  he  buys  the  goods. 
This  is  the  usual  method  in  large  depart- 
ment stores  and  is  always  the  method  where 
the  customer  is  a  stranger.  When  goods 
are  sent  to  a  customer  by  messenger  or  de- 
livery wagon,  the  person  who  has  charge  of 
delivering  the  goods  can  be  instructed  to 
collect  from  the  customer  the  money  that 
is  due,  before  the  goods  are  delivered.  When 
merchandise  is  sent  by  express,  the  express 
company  can  be  told  to  deliver  the  goods 
"  C.O.D.,"  which  means,  "  Cash  on  deliv- 
ery." The  express  company  will  give  a  re- 


MONEY 

ceipt  to  the  sender  in  which  it  is  stated  that 
the  goods  will  not  be  delivered  until  the 
person  to  whom  they  are  sent  has  paid  a 
certain  sum  of  money.  The  express  com- 
pany agrees  to  pay  this  money  to  the  sender, 
when  it  has  been  collected,  after  deducting 
a  charge  for  its  services  in  making  the  col- 
lection. When  goods  are  shipped  by  freight, 
there  is  a  method  by  which  the  sender  can 
collect  the  money  that  is  due  before  the 
customer  receives  the  goods.  In  business 
language  this  method  of  collection  is  known 
as  a  draft  with  bill  of  lading  attached.  The 
seller  writes  an  order  directing  the  customer 
to  pay  a  certain  sum  of  money  after  a  cer- 
tain number  of  days.  This  order  is  called  a 
draft.  The  number  of  days  is  sufficient  to 
allow  the  goods  to  arrive  at  their  destina- 
tion before  the  time  when  the  draft  must 
be  paid.  In  the  draft  the  customer  is  usu- 
ally directed  to  pay  the  money  either  to 
the  order  of  the  seller  or  to  the  order  of 
the  seller's  bank.  Then  the  bill  of  lading  is 
pinned  to  the  draft  and  they  are  given  by 
the  seller  to  his  bank,  with  instructions  that 
152 


COLLECTING 

the  bill  of  lading  for  the  goods  is  not  to  be 
delivered  until  the  draft  has  been  paid. 

Let  us  suppose  that  P.  F.  Carroll  &  Co., 
of  New  York,  have  sold  goods  to  Mar- 
ston  &  Mandel,  of  Buffalo.  The  goods 
have  been  shipped  by  the  New  York  Cen- 
tral Railroad  Company  and  the  amount  of 
the  bill  is  $350.  A  draft  is  drawn  by  the 
sellers  in  the  following  form  :  — 

$350.00  New  York,  Jan.  10,  1916. 

Ten  days  after  date  pay  to  the  order  of 

Ourselves  Three  hundred  fifty  dollars,  value 

in  account  with  P.  F.  CARROLL  &  Co. 

To  Messrs.  Marston  &  Mandel, 
Buffalo,  N.Y. 

P.  F.  Carroll  &  Co.  endorse  this  draft 
by  writing  their  name  on  the  back  of  it,  or 
else  by  writing  above  their  name  the  words 
"  Pay  to  the  order  of  the  Corn  Exchange 
Bank."  Then  they  pin  to  the  draft  the  bill 
of  lading  for  the  goods,  and  send  the  draft 
to  the  Corn  Exchange  Bank  for  collection. 
The  Corn  Exchange  Bank  then  endorses 
the  draft  and  sends  it  to  some  bank  in  Buf- 
'53 


MONEY 

falo.  The  Buffalo  bank  presents  the  draft 
to  Marston  &  Mandel  on  January  n,  and 
they  write  on  it  their  "acceptance,"  which 
is  their  promise  to  pay  the  draft  on  January 
20.  When  Marston  &  Mandel  are  notified 
by  the  railroad  company  that  the  goods 
have  arrived  at  Buffalo,  which  will  probably 
be  before  January  20,  they  send  $350  at 
once  to  the  Buffalo  bank  and  the  bank 
gives  them  the  draft  and  the  bill  of  lading. 
As  soon  as  the  Corn  Exchange  Bank  in 
New  York  receives  word  that  the  draft  has 
been  paid,  it  notifies  P.  F.  Carroll  &  Co. 
that  their  account  has  been  credited  with 
$350  and  has  been  charged  with  a  certain 
small  sum  for  collection. 

When  goods  are  sold  and  delivered  to  a 
customer  and  payment  is  to  be  made  at  a 
future  time,  a  bill  is  sent  to  the  customer  and 
his  account  is  charged  on  the  seller's  books 
with  the  amount  due.  When  the  time  for 
payment  has  arrived,  a  clerk  can  be  sent  to 
the  customer's  office  to  ask  for  payment, 
which  is  usually  made  in  such  a  case  by  giv- 
ing a  check.  If  the  customer  is  in  another 
154 


COLLECTING 

city,  a  draft  can  be  drawn  on  him  by  the 
seller  and  can  be  collected  through  a  bank. 
If  a  discount  is  allowed  by  the  seller  for 
payment  before  the  bill  is  due,  the  customer 
often  sends  a  check  in  advance  in  order  to 
have  a  right  to  deduct  the  amount  of  this 
discount  from  the  bill. 

Often  there  is  an  agreement  that  the  buyer 
shall  give  the  seller  a  promissory  note  for 
the  amount  of  the  bill,  and  this  note  is  made 
payable  on  the  date  when  the  bill  is  due. 

Another  method  is  for  the  seller  to  draw 
a  draft  on  the  customer  for  the  amount  of  the 
bill,  making  the  draft  payable  on  the  date 
when  the  bill  is  due.  This  draft  is  mailed  to 
the  customer  who  writes  his  acceptance  on 
it  and  mails  it  back  to  the  seller.  This  method 
is  becoming  usual  in  certain  lines  of  business. 

When  a  merchant  has  received  a  note  or 
an  acceptance  from  a  customer,  he  can  ob- 
tain cash  at  once  by  discounting  it  at  his 
bank.  This  means  that  he  endorses  the  note 
or  the  acceptance  and  sells  it  to  his  bank 
for  cash.  The  bank  pays  him  by  crediting 
his  bank  account  with  the  amount  of  the  note 
155 


MONEY 

or  acceptance  after  deducting,  in  advance,  a 
charge  for  interest  for  the  time  that  will 
elapse  before  the  date  when  the  note  or  draft 
will  be  paid. 

If  the  merchant  does  not  need  cash  at 
once,  he  will  keep  the  note  or  acceptance 
until  a  few  days  before  the  date  when  it  be- 
comes due.  Then  he  will  endorse  it  and  give 
it  to  his  own  bank  for  collection. 

Merchants  who  are  in  the  habit  of  taking 
notes  or  acceptances  from  their  customers 
should  keep  records  which  show  clearly  and 
readily  the  dates  on  which  such  notes  and 
drafts  are  due.  It  is  true  that,  even  if  a  note 
or  acceptance  is  presented  for  payment  after 
the  date  when  it  is  due,  and  payment  is  not 
made,  the  customer  who  signed  the  note  or 
accepted  the  draft  can  be  sued  at  law.  But 
it  is  often  the  case  that  a  merchant  will  not 
take  a  note  or  acceptance  from  a  customer 
unless  it  is  endorsed  by  some  one  whom  he 
considers  responsible.  If  there  is  an  endorse- 
ment and  the  customer  fails  to  pay,  the 
merchant  can  sue  either  the  customer  or  the 
endorser,  or  first  one  and  then  the  other,  if 


COLLECTING 

he  fails  to  collect  the  money  from  the  one 
whom  he  sues  first.  But  he  can  sue  the  en- 
dorser only  in  case  he  secures  the  proof, 
required  by  law,  to  show  that  the  draft  or 
acceptance  was  presented  for  payment  on  the 
exact  date  when  it  was  due.  The  law  requires 
that  if  payment  is  not  made  when  the  note 
or  acceptance  is  presented  in  the  usual  way, 
it  shall  be  given  to  a  notary  public  who  shall 
present  it  again  for  payment,  on  the  same 
day.  Then,  when  payment  is  again  refused, 
the  notary  writes  a  statement  of  what  he  has 
done  and  sends  a  notice  to  every  person 
whose  name  appears  on  the  note  or  accept- 
ance, that  payment  has  not  been  made.  This 
is  called  protesting  a  note  or  draft  and  the 
notice  sent  is  a  notice  of  protest.  If  this  is 
not  done,  every  endorser  is  released  from 
his  obligation  to  pay,  and  only  the  signer 
of  the  note  or  the  acceptor  of  the  draft  can 
be  sued  at  law. 

A  check  is  a  demand  draft  on  a  bank,  and 
the  above  rule  in  regard  to  endorsers  applies 
also  to  checks.  The  law  requires  that  a  de- 
mand draft  shall  be  presented  for  payment 


MONEY 

within  a  reasonable  time.  If  a  man  who  re- 
ceives a  check  holds  it  for  several  days  before 
depositing  it  in  his  own  bank  for  collection, 
this  fact  alone  is  sufficient  to  release  every 
one  who  may  have  endorsed  the  check 
from  any  obligation  to  pay,  in  case  the  man 
who  drew  the  check  did  not  have  money 
enough  in  his  bank  to  pay  it,  or  in  case  the 
bank  fails  before  the  check  is  presented  for 
payment.  Even  if  the  check,  when  received, 
is  deposited  at  once  for  collection,  and  it  has 
an  endorser,  it  is  necessary  to  have  it  pro- 
tested by  a  notary  if  payment  is  not  made 
by  the  bank  on  which  it  is  drawn.  If  the 
check  is  not  protested,  the  person  who  signed 
it  can  still  be  sued,  but  the  endorsers  are 
released  from  any  obligation  to  pay. 

If  a  man,  after  giving  some  one  a  check 
on  a  bank,  finds  out  that  for  some  reason 
or  other  he  should  not  have  given  it,  he  can 
notify  the  bank  not  to  pay  the  check  and 
the  bank  will  not  pay  it.  This  is  called  stop- 
ping payment  of  a  check.  If  the  man  who 
received  the  check  was  really  entitled  to  the 
money,  he  can,  of  course,  sue  the  man  who 
158 


COLLECTING 

gave  him  the  check  and  who  afterwards 
stopped  payment.  But  let  us  suppose  that 
the  man  who  received  the  check  endorsed  it 
and  gave  it  to  some  one  else  in  exchange  for 
something  of  value.  The  check  is  then,  in 
business  language,  in  the  possession  of  a 
holder  in  due  course.  In  this  case,  if  payment 
of  the  check  is  stopped  even  for  very  good 
and  sufficient  reasons,  the  holder  in  due 
course  can  demand  payment  of  the  amount 
of  the  check  from  the  man  who  signed  it, 
and  the  law  will  compel  the  signer  of  the 
check  to  pay  the  money. 

Business  men  are  usually  obliged  to  em- 
ploy the  services  of  clerks  to  transact  a  great 
deal  of  their  business  and  to  keep  their  ac- 
counts. It  is  the  custom  of  good  business 
men  to  examine  the  work  of  their  clerks 
from  time  to  time  or  to  have  it  examined 
by  others.  This  should  always  be  done,  not 
only  in  justice  to  the  business  man  himself, 
but  also  in  justice  to  the  clerk.  Everything 
should  be  checked.  Especially  when  the 
bank  deposit  book  is  balanced  by  the  bank, 
the  canceled  checks  which  are  returned  by 


MONEY 

the  bank  should  be  compared,  by  the  em- 
ployer personally,  with  the  entries  which 
the  clerk  has  made  in  the  checkbook. 

Few  things  are  more  dangerous  to  a  man 
than  the  knowledge  that  he  can  do  what  he 
pleases  and  that  nobody  will  call  him  to  ac- 
count. When  a  clerk  is  in  a  position  of  trust, 
it  is  not  right  to  expose  him  to  such  temp- 
tation. Neither  should  a  business  man  be 
expected  to  permit  any  one  to  have  charge 
of  his  property  without  any  check  upon  that 
person's  actions.  A  clerk  is  very  unreason- 
able who  feels  insulted  when  his  accounts 
are  examined.  If  his  work  is  good,  he  ought 
to  feel  glad  to  have  his  employer  know  it. 
If  his  work  is  dishonest  or  inefficient,  he 
has  no  right  to  complain  when  his  em- 
ployer discovers  that  fact. 


INDEX 


Acceptancesf67. 
Accounts,  35,  48,  49. 
Advertising,  135. 
American  Revolution,  57. 
Artisans,  22. 
Assignment,  129. 
Assyrians,  36. 
Athens,  18. 

Bank  clearings,  91. 
Bankers,  62. 
Banking,  55,  61. 
Bank-notes,  56. 
Bankrupt,  130. 
Banks,  68. 
Barter,  7. 

Bill  of  exchange,  55,  89. 
Bill  of  lading,  65,  124,  147. 
Bonds,  70. 
Bookkeeping,  36. 
Buying,  117. 

Call  loans,  63. 
Cash,  36-43. 
Cattle  money,  12. 
Cave  men,  5. 
Certificates  of  stock,  74. 
Charges,  39. 
Checking,  159. 
Checks,  58. 
China,  56. 
Clearing  house,  91. 


C.O.D.,  151. 

Coins,  17. 
Collateral,  68. 
Collections,  151. 
Confederate  money,  I. 
Continental  Congress,  57. 
Continental  money,  57. 
Corporations,  73. 
Cost  calculation,  137. 
Coupon  bonds,  77. 
Credit  man,  142. 
Credits,  40. 

Debits,  40. 
Debt,  20. 
Delivering,  146. 
Deposits,  63. 
Discounts,  62. 
Drafts,  66. 

Egyptians,  36. 
Endorsements,  66.     , 
Exchange,  86;  bill  of,  55,89. 
Expense,  36,  46. 

Failure,  121,  129. 

Federal  Reserve  Banks,  68. 

Fire  insurance,  127. 

First  cost,  137. 

Foreign  exchange,  86. 

Free  cities,  22. 

Freight,  86. 


161 


INDEX 


Gambling,  81. 
Gifts,  30. 
Gold,  2,  16. 
Government  notes,  57. 
Greeks,  37. 
Guilds,  22. 

Hittites,  36. 

Insolvent,  131. 
Interest,  25. 
Inventory,  126. 
Iron  money,  18. 

Joint-stock  companies,  72. 

Lading,  bill  of,  65,  124,  147. 
Lending,  24. 
Letters  of  credit,  108. 
Limited  liability  companies, 

73- 
Loans,  62. 

Manufacturing  cost,  138. 
Marine  insurance,  127. 
Mercantile  agencies,  142. 
Merchandise,  36,  44,  61. 
Merchants,  61. 
Mint,  2,  90. 
Misers,  3. 
Money  brokers,  62. 

National  banks,  68. 
Notes,  Government,  57. 

Overhead  cost,  138. 

Pawnbrokers,  65. 
Paying,  128. 


Phoenicians,  36. 
Private  banks,  68. 
Protest,  157. 

Qualities  of  money,  3,  8. 

Receiving,  123. 
Registered  bonds,  77. 
Revolution  (American),  57. 
Romans,  37. 
Rule  of  bookkeeping,  39. 

Salesmen,  144. 
Saving,  32. 
Savings  banks,  26. 
Selling,  135. 
Selling  cost,  138. 
Silver,  16. 
Slavery,  20. 
Solvent,  130. 
Sparta,  18. 
Speculation,  78. 
Spencer,  Herbert,  7. 
State  banks,  68. 
Stock  clerks,  126. 
Stocks,  70. 

Stopping  payment,  158. 
Substitutes,  54. 
Sweden,  56. 

Travel,  107. 
Traveler's  checks,  108. 

Venice,  55. 

Wampum,  14. 
Warehouse  receipts,  65. 
Wild-cat  bank-notes,  68. 
Women,  102. 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


REC'D  LD 
AUG  23  1957 


REC'D 

NOV  , 


D  21-100m-9,'47(A5702sl6)476 


I  U      I 


41628$ 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


